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foreign investment will not change, uncertainties caused by the recent political developments are likely to persist at least for the next few months.
20.
Amidst uncertainties over the economic reform
programme, a comforting sign for many Chinese leaders was provided by the external trade sector. The trade deficit
problem appears to have been brought under control in 1986, although the deficit itself persists. This reflects the success of the Chinese authorities in restraining imports and in promoting exports. However, the export drive has diverted many goods away from the domestic market, thus aggravating the problem of excess demand in the Chinese economy. According to the Customs Statistics, China's exports grew by 13.1% in 1986 to US$30.9 billion, while its imports showed only a modest growth of 1.6% to US$42.9 billion. In consequence, there was a trade deficit of US$12 billion, which compared favourably with the deficit of US$14.9 billion in 1985. The statistics
released by China's Ministry of Foreign Economic Relations and Trade (which are considered less reliable for the
purpose of macroeconomic analysis) show that China's exports increased by 4.2% in 1986 to US$27.0 billion, notwithstanding a reduction of US$3 billion in oil exports. On the other hand, according to the same source, imports fell by 4.6% to US$32.8 billion and, as a result, the trade deficit stood at US$5.8 billion, down 32% from a
deficit of US$7.6 billion in 1985.
21.
On invisible trade, a surplus of about US$3.8 billion was recorded in 1986, which was sufficient to cover roughly one third of the visible trade deficit (Customs Statistics). The remaining two thirds of the visible trade gap was financed mostly by trade credits and other borrowings. The total volume of foreign loans
CONFIDENTIAL # 28
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