CONFIDENTIAL
060312
MOTTAN 6725
ECONOMY AND THE DEEPENING OF REFORM AND OPENING UP. JIANG'S DEGREE WAS NOT IN ECONOMICS BUT HE REMEMBERED SOMETHING ONCE SAID BY A NOBEL LAUREATE (PETERS?) THAT A CAR WITHOUT BRAKES WAS NO GOOD. ON THE OTHER HAND, COMING TO SCREAMING HALT WAS ALSO UNDESIRABLE.
6.
JIANG THEN TOLD ANECDOTES FROM HIS EXPERIENCE AS AN ELECTRICAL ENGINEER IN ROMANIA TO DEMONSTRATE THE POINT THAT THE CHINESE GOVERNMENT INTENDED TO APPLIED THE BRAKES SLOWLY TO SLOW DOWN BUT NOT STOP THE ECONOMY. HE SAID THAT WHEN AN EXPERIENCED DRIVER APPLIED THE BRAKES, THE PASSENGERS DID NOT NOTICE IT. THERE WOULD BE A CERTAIN READJUSTMENT. FOR EXAMPLE THE CHINESE AUTHORITIES HAD STRENGTHENED THE LEADERSHIP OF THE BANKS BY ASKING EXECUTIVE VICE-PREMIER ZHU RONGJI TO BECOME THE NEW PRESIDENT OF THE PEOPLE'S BANK OF CHINA. CHINA'S CENTRAL BANK NEEDED TO BE REFORMED. IT SHOULD HAVE A ROLE AS A RESERVE BANK AND SHOULD MAKE POLICY, BUT NOT ITSELF ENGAGE IN COMMERCIAL ACTIVITIES. THIS WAS THE METHOD USED IN BOTH SOCIALIST AND FREE MARKET ECONOMIES IN DEVELOPED CAPITALIST COUNTRIES. ANOTHER EXAMPLE OF A PROBLEM AREA, WHERE EFFORTS TO INTRODUCE CAPITAL HAD LED TO SOME CONFUSION, WAS THE USE OF VERY HIGH INTEREST RATES TO ATTRACT CAPITAL. THIS WAS ILLEGAL AND WOULD NOT BE ALLOWED IN THE FUTURE. HOWEVER JUST SAYING THIS WAS NOT ENOUGH. THE PEOPLE'S BANK OF CHINA WOULD HAVE TO BE ASKED TO INCREASE ITS INTEREST RATES ON DEPOSITS.
7.
EXCHANGE
FOREIGN EXCHANGE WAS ANOTHER SUCH AREA. THE OFFICIAL RATE WAS AROUND 5.7 RMB: 1 USD. ON THE BLACK MARKET THIS RATE HAD RECENTLY BEEN AS HIGH AS 10 OR 11:1. THROUGH THE GOVERNMENTS EFFORTS TO STRENGTHEN THEIR CONTROL, THE BLACK MARKET RATE HAD NOW DROPPED TO JUST UNDER 9:1 (WU JIANMIN INTERVENED TO SAY THAT IT HAD DROPPED TO 8.4 IN THE SHANGHAI SWAP CENTRE THE PREVIOUS DAY). AS JIANG SAW IT, THE PROSPECT WAS TURNING FOR THE BETTER. IN THE FUTURE THE GOVERNMENT WOULD CONTROL EXCHANGE RATES BY USING A CERTAIN FOREIGN EXCHANGE RESERVE TO SELL FOREIGN CURRENCY IF THE PRICE INCREASED AND BUY IT IF THE RATE FELL.
8. RECENTLY THERE HAD BEEN TWO CONFLICTING ASSESSMENTS OF CHINA'S ECONOMIC SITUATION. THE FIRST SAID THAT THE ECONOMIC SITUATION WAS EXTREMELY GOOD. THIS WAS UNDESERVED. THE ECONOMY HAD ENJOYED GOOD DEVELOPMENT BUT WAS NOW FACING SOME PROBLEMS. THE IMF HAD USED ITS METHODS AND DECIDED THAT CHINA WAS THE NUMBER THREE ECONOMIC POWER IN THE WORLD. JIANG DID NOT THINK THAT WAS TRUE, BUT IT WAS DEMOCRATIC FOR PEOPLE TO USE DIFFERENT METHODS IN ASSESSING THIS. HE HAD ALSO HEARD IT ARGUED THAT THE HIGH ECONOMIC GROWTH RATE WAS DANGEROUS AND MEANT THAT CHINA POSED A THREAT TO THE OUTSIDE WORLD.“
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