TNAG-1624-FCO40-2238-Relations-between-Hong-Kong-and-China-1987 — Page 159

G.F. 326

CONFIDENTIAL

2

(5)

(6)

In recent months, emphasis has apparently shifted from price reforms to reforms of the enterprise management system. However, it is doubtful whether a system of enhanced managerial responsibility and

discretion could be successful in the absence of a

more rational price structure (paragraphs 8 and 9).

The performance of China's external sector showed a remarkable improvement in the first half of 1987.

According to the Chinese Customs statistics, on a year-on-year comparison in terms of value, China's exports grew by 24%, while imports fell by 6%. The resulting visible trade deficit, at US$2 billion, was significantly smaller than that of US$6.4 billion in

the first half of 1986. Moreover, an invisible trade surplus of US$1.7 billion was recorded in the first

half of 1987 (paragraphs 10 and 14).

(7) Pledged direct foreign investment in China in the

first half of 1987 amounted to US$1.1 billion, 23.4%

less than a year ago. The effectiveness of the twenty-two provisions for improving the investment climate for foreign investors, promulgated in October

1986, still remains to be seen (paragraph 15).

(8) Hong Kong's domestic exports to China continued to

grow strongly in the second quarter of 1987, by 638 in value terms over the second quarter of 1986. Over the same period, the value of re-exports to China

increased by 47% (paragraphs 23 and 24). Meanwhile,

the value of imports from China rose by 48%, and the

value of re-exports of China origin by 70% (paragraph 26). Much of the recorded growth in China trade is

attributable to the increase in outward processing

activities.

CONFIDENTIAL #