been clear cut and it was quite possible that it would be some time before a paramount leader emerged again this time. Mr Elston
suggested that Deng's influence might be on the wane he had apparently been overruled when the decision was made to dampen down the overheating economy. Mr Lane thought that, whilst there may have been a sharp adjustment, it was still described as fine-tuning in line with Deng's wishes. Mr King commented that the forecast did not appear to suggest that the authorities would make much progress in developing market based instruments - nominal interest rates
moved very little during the forecast period while the fiscal position was also very static. Mr Riley commented that the fiscal deficit might well be much larger than projected.
4 Mr Lane questioned whether the central case should make more explicit assumptions about the political environment. Mr Orchard said that it would be important to spell out the exact nature of the political assumptions if these were to be reflected in the base
case. It was agreed that, depending upon the nature of the transition, economic growth could either surge in the short term during the transition (if controls were eased) or could be restrained if the reform process was suspended pending the emergence of a paramount leader. Action: in the light of this
discussion, it was agreed that it was not sensible to assume when
the succession would take place nor what its short term economic
impact would be. It was recognised that the succession issue was a
significant uncertainty surrounding the forecast.
5 The meeting discussed the treatment of the economic cycles in
the forecast. Mr King commented that in most cases, because of the difficulty of forecasting turning points, longer term economic forecasts showed trend values even where it was recognised that economic cycles would contine. Mr Riley commented that he had found the cyclical forecast an interesting experiment. Mr Muckersie
remarked that cyclicality should not present any technical problems for PMS although it might be necessary to carry out some smoothing
(eg by averaging the last three years of the forecast etc). Action: it was agreed that a cyclical forecast was acceptable. ECGD to carry out any required smoothing when putting the results
through PMS.
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