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which reinforce, rather than retard or reverse, the progress made since 1984 in strengthening economic efficiency. The danger of "stagflation" worries the economic planners. 1989 promises to be a difficult year.
5.
A
It was again obvious how far Chinese foreign policy reflects the basic needs of domestic policy. China wants peaceful relations with its neighbours to get on with the economic development of the country. The world situation was generally favourable for China during the year. number of "hot spots" in various parts of the world cooled. The signing of the Geneva Accord on Afghanistan, Iran's and Iraq's acceptance of UN Security Resolution 598 (although it may now lose China some foreign exchange from further arms sales), the agreement over Angola/Namibia, and, in particular, the aftermath of the United States/Soviet agreement on arms reduction, all moved in a direction favourable to China. In the spirit of moving from confrontation to dialogue, relations with the Soviet Union have improved dramatically. Perhaps getting the log jam moving was not so much the result of Chinese flexibility but the speed of Gorbachev's forward movement, which took others besides Peking by surprise. The Russians seemed to have convinced the Chinese, and especially Deng Xiaoping, that Gorbachev would stick to his last on reform and that he would end all of the USSR's more aggressive entanglements in Asia. The attraction of pocketing and consolidating these concessions, which could create a new basis for Chinese-Russian co-existence, and which were favourable to the survival of China's own reforms, was probably what swung the Chinese round to acceptance of a Summit. With the Summit lined up, probably for May 1989, and with the Russians still expecting to have to pay a price for it with further efforts on Cambodia, the Chinese have been sitting pretty. Other Asian leaders are beating a path to the Chinese door (Ershad, Gandhi and perhaps Mrs Bhutto in 1989). The Indian visit, while achieving little, was of considerable importance as the first by an Indian Prime Minister for 34 years, There was no change in the relatively comfortable relations with the United States and Japan, but the Chinese still feel free to pursue their grievances with both, knowing that neither is willing to treat Peking too harshly in a time of Sino-Russian rapprochement. The Chinese are probably content with Taiwan's response to their policy of increased human contacts, although these have not so far brought a long term solution any nearer. The general climate in the world has afforded even greater possibilities of dialogue with Eastern Europe. Relations with Western Europe were warm and full, symbolised by the successful launch of the European Community office which is now a prominent and positive feature in our diplomatic life.
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