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exports and the enlarged gap between the rate required to maintain export competitiveness and the official exchange rate has to be made up, at least in part, by government subsidies. Paradoxically, the Government's budgetary constraint may be an obstacle to the growth of those Chinese exports the proceeds from which have to go through the official conversion channel.
36.
On the other hand, the situation of aggregate demand being in excess of aggregate supply result in more imports to satisfy part of the unsatisfied demand existing in China's economy. China's foreign trade corporations are likely to be keen to capitalise on the advantages of further liberalisation and relaxation of the foreign trade regime entailed in the Coastal Region Economic Development Strategy. A certain degree of relaxation of China's import restrictions may be possible in view of its improvements in its visible trade balance and foreign
(23) exchange reserve position
But with the substantial
depreciation of the Renminbi in the black market, resulting in much higher Renminbi prices for imports, China's growing demand for imports has been curtailed
somewhat.
(23) China's visible trade deficit amounted to US$3.7
billion in 1987, substantially lower than the corresponding figures of US$14.9 billion and US$12 billion in 1985 and 1986 respectively. In the first half of 1988, its visible trade deficit further reduced to US$1.15 billion from US$2 billion in the first half of 1987. Partly related to the improvement in visible trade balance, China's foreign exchange reserves reached records of US$17.1 billion and US$18.1 billion respectively at the end of March and June 1988, surpassing the previous peak of US$16.7 billion recorded at the end of September 1984.
G.F. 326
CONFIDENTIAL # 3
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