TNAG-1624-FCO40-2238-Relations-between-Hong-Kong-and-China-1987 — Page 165

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returns, particularly in terms of net foreign exchange earnings. Hotel construction is one such example, given

the present surplus of hotel rooms in some parts of

China. The State Council has also announced that for

those projects not directly related to physical production that are allowed to continue, a 30% construction tax will

be levied.

Notwithstanding the buoyant state of the

economy, state revenue dropped by 1.7% in the first half

of 1987 compared with the same period in 1986, to Rmb 90 billion. The poor performance of the state-run enterprises was one of the major reasons behind this

unsatisfactory fiscal position. In the first five months

of 1987, the total value of output of state enterprises increased by 11.2% over the same period last year, while

(3). profits edged up by only 0.8%

On state expenditure, total public spending fell by 3.1% in the first half of 1987 compared with the same period in 1986, to Rmb 85 billion. In consequence, a fiscal surplus of Rmb 5.4 billion was recorded in this period. However, as the bulk

of state expenditure usually falls in the second half of the year, China may well turn out to have a large fiscal deficit in 1987, unless more stringent controls are imposed on capital construction and on the use of administrative funds.

(3)

The sluggish growth in profits was largely attributable to the increase in production costs. According to the state plan, with improved

efficiency in the industrial enterprises, production costs were expected to decline by 2% in 1987.

However, as it turned out, production costs.

increased by 4.6% in the first half of this year compared with the same period in 1986.

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