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(b) Possible effects of policy action
17. How far either party might deliberately take action damaging to existing economic relations between the U.X. and China, would depend upon the circumstances of the "loss" of Hong Kong. In the worst case the loss of Hong Kong could lead to something akin to economic
We would be at warfare between the U.X, and China. risk in respect of exports of the order of #32 million. Our imports from China totalled 34 million in 1966. while about 10 per cent of these imports are quota controlled textiles, they consist mainly of foodstuffs, raw materials and semis, which would tend to be replaced by imports from third countries (perhaps at higher cost) rather than by increased U.K. production.
Subject to
sene re-deployment of the resources at present used for exports to China into other uses beneficial to the balance of payments, a cessation of our trade with China could have an adverse effect on the balance of payments of up to say £30 million. (It would be for consideration what treatment we would give to China's small sterling balances in these circumstances.)
the
18. In certain circumstances on the other hand H.M.G. might wish to make economic concessions to China:
main possibilities are:-
(1) an increase in quotas for imports of
manufactured goods from China (which could be supplied by use of Hong Bong's capacity) and (2) releases of sterling to Chinese control from
Hong Kong's blocked balances.
The effects on the U.X. economy of such concessions would depend on the quid pro quo. Broadly, however, in so far as the quid pro quo were economic (e.g. increased
opportunities of a UK, trade with China, or Chinese
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