TNAG-1873-FCO40-2661-Relations-between-Hong-Kong-and-China-1989 — Page 267

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22

(15)

price reform in particular seem to depend on how the broad outline plan on price/wage reform put forward subsequent to the Beidaihe meetings is implemented. But unless the problem of inflation develops into widespread social unrest, Hong Kong is likely to continue to benefit from the rapid economic growth in China generally and in Guangdong in particular. Also, against the background of a substantial improvement in its visible trade balance in 1987 and in the first half of 1988, and the adoption of the Coastal Region Economic Development Stategy, China may

relax some of its import control measures so as to provide partial relief to the pressures arising from the strong domestic demand. This should benefit Hong Kong's exports

to China. In fact, the very rapid growth of Hong Kong's domestic exports and re-exports in the first half of 1988 seemed to provide evidence of such a favourable (from Hong Kong's point of view) development. For 1988 as a whole, those of Hong Kong's domestic exports and re-exports to

China which are to meet China's domestic demand, rather

than for outward processing, can be expected to show

substantial growth over 1987.

(15) The 10th meeting of the Political Bureau of the Party

Central Committee held in Beidaihe between 15 and

17 August 1988 agreed that the general orientation of the price reforms in the next five years is one of letting the state continue to control the prices of a few important commodities and labour while liberalising the prices of the majority of the commodities and subjecting them to market regulation. In the end it will become possible for the state to regulate the market and the market to guide enterprises. The overall objective of wage reform is that the living standards of most wage earners do not drop in the course of the price reform and even improve somewhat along with the development of production, by regulating and raising wages while providing additional subsidies of an appropriate amount. Also the State Council has decided that no new price reform measures will be put forward in the remaining months of 1988.

CONFIDENTIAL #3