TNAG-1873-FCO40-2661-Relations-between-Hong-Kong-and-China-1989 — Page 178

(..7. 326

CONFIDENTIAL # ≈

- 5 -

exports, at US$3.5 billion, was 34.2% higher than in the first half of 1987 (9).

7.

•

Guangdong's economic success, in the 1980s is

(11)

often attributed to its generally favourable policy treatment by the central government which includes, among other things, a greater degree of freedom in conducting its foreign economic relations and trade, a higher foreign

(10) exchange retention ratio and a relatively small financial contribution to the central government But it should be noted that Guangdong has so far experienced much faster economic growth and development than Fujian although Fujian has more or less the same amount of freedom and preferential treatment in managing its domestic economic affairs and developing foreign trade and investment. The greater success of Guangdong is probably largely due to its proximity to Hong Kong and, to a lesser extent, Macau. If, in future, Taiwan allows direct trade and economic contact with China, Fujian could well develop at much faster pace than at present.

(9) The rate of increase in the Renminbi value of

industrial output that is channelled to exports was probably substantially higher than 34.2% due to the unofficial depreciation of the Renminbi in the black market and the government sanctioned foreign exchange adjustment centres.

(10) Guangdong is allowed to retain 30% of the foreign exchange it earns, compared with only 25% for Shanghai. Moreover, the three special economic zones (Shenzhen, Zhuhai and Shantou) and the Guangzhou Economic and Technical Development District in Huangpu are reported to have been allowed to retain all the foreign exchange they earn.

(11) At present, Guangdong's annual financial submission

to the central government is about Rmb 1 billion, less than 2% of its contribution to the national income. This compares very favourably with Shanghai which has to submit Rmb 10.5 billion annually, amounting to about one-quarter of its contribution to the national income.

CONFIDENTIAL # 3