TNAG-1621-FCO40-2235-Relations-between-Hong-Kong-and-China-1987 — Page 136

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production framework is not flexible enough to keep pace with changes in market conditions, particularly in respect of overseas markets, and most manufactured products are of sub-standard quality. Fourth, efficiency is low and the

level of wastage is high. To tackle these thorny

problems, China has little choice but to adopt more

fundamental economic reforms. The new labour system and

the proposed bankruptcy law are part of the recent efforts

in this direction. It is likely that, at some stage, China will introduce more drastic price reforms. Yet, given the complexity of such reforms and the resistance likely to be encountered, immediate success cannot be

expected. The recent controversy in the adoption of the bankruptcy law is an illustration of the difficulties

involved. The proposed, but delayed, abolition of the Foreign Exchange Certificate is another.

37.

For Hong Kong, China's continued commitment to the open door economic policy is reassuring. However, the growth in Hong Kong's domestic exports to China in the near future will continue to be affected so long as China

maintains its tight controls on imports and on foreign

exchange spending. In fact, the Guangdong Provincial

Government recently announced stricter measures to control the import of 28 items including TV sets, cassette

recorders, western-style clothing, sports shoes etc. At the same time, counter-trade arrangements not involving

the direct use of China's scarce foreign exchange reserves

G.F. 326

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