TOP SECRET
4. In Section II an attempt is made to assess the potential effects on the United Kingdom economy of possible developments, accompanying (or
consequential on) the loss of Hong Kong, in our economic relations with China. In particular account is taken of possible policy action by either the United Kingdom or China which would call for modification of the
assumptions in paragraph 3.
Effects on the United Kingdom economy (from loss of economic relations
with Hong Kong only)
I.
5.
The United Kingdom balance of payments on current account with Hong Kong
in 1966 was approximately as follows
£ Million
(a) United Kingdom Exports
+ 66*
(a)
Imports
- 72*
(b) IPD
+ 10
(e)
United Kingdom Forces
10
(c) Other
(f)
Earnings on
(incomplete)
+ 5
Hong Kong sterling
balances
15
Total Credits
+ 81
Total Debits
- 97
Balance
16
Rate of men of sterling Falas de
Le Gabe in to
*United Kingdom figures, with an arbitrary deduction in the case of
imports to discount carriage insurance and freight earnings from which are disregarded because no detailed information is available as to how far they accrue to the United Kingdom.
There are no reliable figures for long-term capital movements, but such indications as there are suggest that they are small and can safely be ignored for present purposes.
6. On invisible account (items (b), (c), (e) and (f)) the United Kingdom
showed a net deficit in 1966 of £10 million. After the loss of Hong Kong and on the assumpstions in paragraph 3 items (b) and (e) would simply cease. We do not know the composition of (c), but the figure is small and some part of it may well represent transfer payments (rather than payments for services).
It is therefore assumed as a matter of convenience that these United Kingdom
earnings would cease and their cessation would release no resources. · While
the balances are assumed to be blocked, earnings on them would continue to accrue ((f)). Although these would not be transferred they would be recorded as an invisible debit in the basic balance of payments ("financed"
(97793)
--
TOP SECRET