TNAG-1623-FCO40-2237-Relations-between-Hong-Kong-and-China-1987 — Page 108

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part of this year. To increase its export earnings in the long run, China has little choice but to upgrade it

products. Its recent efforts to establish textile export

bases in 12 established cities can be interpreted as a

step in this direction.

13.

Another problem facing China's external sector

is that it is too reliant on state financial support in

the form of various kinds of subsidies. This is

evidenced by the strong resistence put up by state

trading corporations towards the responsibility system, under which they are required to be responsible for their

own profits and losses.

14.

These weaknesses in the export sector have

probably made the Chinese authorities uncomfortable about

relaxing controls over foreign exchange earnings, even

though the visible trade deficit has improved. In the

National Economic and Social Development Plan for 1987,

it was stated that control over imports, particularly

imports of consumer goods and less sophisticated machines

and electronic equipment, would be tightened.

15.

It should also be noted that another reason for

the cautious attitude towards the use of foreign exchange

is that China now has to start repayment of principal and interest on foreign loans. In 1986, repayments of state loans amounted to Rmb 3.4 billion (US$1 billion). This

sum is expected to increase considerably when the grace

periods on concessional loans expire after 1989. At the

end of March 1987, the state's outstanding debt amounted

to US$7.84 billion. Including utilized foreign

investment, China's total external debt (i.e. including

that raised by enterprises and provincial authorities) is estimated to be roughly US$20.6 billion.

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