Min Lakes 2/11/182 RD/ Advo
Picaps you'd ask FED/ RD / Eareddos whether they can quantify ithers?
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Kayden 2/1
HARDCASTLE & COMPANY LIMITED
3 Gracechurch Street, London EC3V 0AB
Telephone: 01-283 4141 Telex 887255 SHARD G
R.T. Renton Esq., MP,
Minister of State,
Foreign and Commonwealth Office,
London SW1A 2AH
Dean Time
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16 December 1986
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As I mentioned when we spoke, I was given a fairly surprising line from Beijing when I was there a couple of weeks ago, starting with the premise that Deng's position was now much stronger again, the criticism against him having reached a peak during late August/September, though not strongly enough to shake him during the October period.
The reason stated to me for this criticism was that it largely centred on his Hong Kong policy which was held to be a major cause for China's present economic difficulties.
Deng had proposed settling what would happen at the end of the lease well ahead of time, rather than letting events take their course. Negotiation of the agreement led to considerable unhappinesss in Hong Kong which in turn led to the flight of confidence and the collapse of the local markets. Having made the agreement, the Chinese Government then felt compelled to support the Hong Kong economy as the major policy pre-requisite.
As a consequence, China had to pump very considerable sums of hard currency into the place, mainly into the banking, property and local commercial markets as well as to the Chinese "Zaibatsus".
It was this foreign currency drain which had made the mainland economy slow down so fiercely, and not the variety
evidence of of uncontrolled imports and malpractices which are publicly
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given the blame for the problems.
The increasing difficulties which arose out of the hard currency support needed last year for the Hong Kong economy had thus fuelled the anti-Deng criticism, and had led to the political crisis of confidence within China and the consequent general atmosphere of uncertainty and apprehension. Deng was blamed for the break in the development programme which was upsetting the rapid implementation of the march towards a market economy without private capitalism thus upsetting both the traditional wing of the Party and those who backed the new approach. The strength of this opposition lies largely in the Army and the Party rather than the economic institutions.
Jor
18/12
J.R. Lacey
Registered Office as above
Directors: C.P.B. Hardcastle (Managing) K.W. Waller Registered in England 1240351
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