TNAG-1622-FCO40-2236-Relations-between-Hong-Kong-and-China-1987 — Page 17

CONFIDENTIAL

PEKING TELEGRAM NO 847 CHINA: ECONOMIC

1. HMA notes that many have linked the political excitements of

the past five months with economic policy and the performance of the Chinese economy.

HMA's view on the economy, in summary, is that "there have been no changes in economic strategy, but that the

implementation of some policies has been slowed up or changed at the

margin, that the performance of the Chinese economy has been good on

the whole, but that some deep-seated problems remain, especially in

relation to inflation and productivity". This assessment is developed in the substance of the telegram.

POLICY

2.

Two principal tasks have been set for 1987: firstly, to

increase production, raise revenue and reduce both expenditure and costs; secondly, to improve the performance of agriculture and of

large and medium-sized enterprises. On the first, measures have

been taken to control investment and administrative and enterprise

operating costs and to check the steady rise in purchasing power and

consumption. On the second, measures have been taken to raise the

quality and marketability of products, reduce stocks and improve

management.

3.

Measures to implement the wide-ranging urban reform programme

outlined in October 1984 have continued in a number of areas, such

as enterprise management, including expansion of the enterprise manager responsibility system and leasing small enterprises to the

management of individuals or groups; finance, where interbank

lending, bill acceptance and discounting, bond issues and the

establishment of specialised banks on commercial lines have all been

promoted; employment, where new workers are recruited on a fixed-term contract rather than being taken on for life; foreign. investment, with new laws to strengthen the investment environment; and the introduction of a personal income tax system.

CONFIDENTIAL

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