TNAG-1873-FCO40-2661-Relations-between-Hong-Kong-and-China-1989 — Page 212

CONFIDENTIAL #3

f

CRC INF 13/88

(CEC 7/88)

Inflation in China and

its implications for

the economies of China and Hong Kong

Contents

Introduction

Current rate of inflation in China

Paragraph

2

1

10

5

Underlying causes of inflation in China

6

(a) Excess demand over supply

7

11

(b) Shifts in relative prices

12

14

Possible measures to combat or accommodate

inflation

Repercussions of inflation in China's economy

(a) Income re-distribution caused

by inflation

15

22

23

27

(b)

Exchange rate of Renminbi

28

32

(c)

Resource allocation between

33

-

- 36

the domestic and the

external sectors

(d)

Possibility of hyper-inflation

37

―

- 38

and danger of social unrest

Implications of China's inflation problem

for Hong Kong

39

(a)

Prices of Hong Kong's imports

40

-

43

from China

(b)

China's demand for Hong Kong products

44

-

45

(c) Outward processing activities

46

(d) General economic stability of Hong Kong

47

Conclusion

CONFIDENTIAL & B

48

49