TNAG-1873-FCO40-2661-Relations-between-Hong-Kong-and-China-1989 — Page 251

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historically high levels and surpassed the previous peak. of US$16.7 billion recorded at the end of September 1984.

12.

While the adoption of the Coastal Region

Economic Development Strategy has led to further

liberalisation of China's foreign trade regime and is

likely to provide added stimulus to its external trade, it

is doubtful whether the current high growth rate of

China's exports can be sustained for much longer.

Domestic inflation is likely to have the effect of

shifting the resources to the domestic sector from the

external sector, unless the differential rates of

inflation between China and its major trading partners are

offset fully by a depreciation of Renminbi or exports are

even more heavily subsidized.

13.

Against the background of China's overheated

domestic economy and facilitated by an improvement in its

visible trade balance and foreign exchange reserve

position, further liberalisation of the foreign trade

regime is likely to result in some relaxation on its import restrictions. This would allow imports to be used

to meet part of the unsatisfied demand existing in China's economy. This may have some favourable impact on Hong

Kong's exports to China (for further details, please refer

to paragraphs 33 to 36, and paragraphs 44 and 45 of

CEC 7/88 "Inflation in China and its implications for the

economies of China and Hong Kong").

14.

(c) Development of China's financial sector

(i)

Loans and money supply

Measures taken by the People's Bank of China in October last year to curb runaway credit and monetary expansion had some success, though the growth rates of the

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