TNAG-1624-FCO40-2238-Relations-between-Hong-Kong-and-China-1987 — Page 169

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exports are unlikely to be sustained in the coming

months. Moreover, China's textiles and clothing

industries are also faced with unreliable supplies of raw

materials. Instead of supplying the textile yarn and

fabrics to factories within China, many suppliers of these

raw materials prefer to export them direct to overseas

markets to earn foreign exchange. This is particularly

the case in the southern provinces where parallel trading

is relatively more widespread. Shortages of raw

materials, particularly those of a high quality, likely to constrain the upgrading of China's textiles and

clothing output. In an attempt to redress the situation,

the Ministry of Foreign Economic Relations and Trade

extended the export licensing system to cotton yarn and

fabrics in August.

12.

are

Crude oil is another major source of export

earnings in China. The Chinese authorities have recently

announced that China's oil exports would be maintained at

their 1986 level, allegedly in support of OPEC's move to

uphold oil prices in the international market. Probably

of more relevance is the fact that the acute shortage of

energy in the domestic economy has constrained China's

ability to increase its oil exports.

13.

On the imports side, despite the improvement in

the visible trade account, there are no signs that China

will relax its import controls. On the contrary,

effective from 1 June, the import controls list was

extended to cover over 80 types of imports, compared with

only 50 types in 1986. With a view to improving the

business opportunities of Sino-foreign joint ventures and

wholly foreign owned enterprises in China, the Chinese government appeared to have stepped up

import-substitution. As an illustration, the Guangdong

authorities have recently announced that, in principle,

CONFIDENTIAL #