(97793)
TOP SECRET
by a corresponding monetary inflow). While this debit would be reduced in so
far as releases from the balances were made to United Kingdom residents, for present purposes we assume that a debit of £15 million would continue.
The overall result on invisibles therefore would be that we would show a total
net deficit of £15 million, as opposed to £10 million in 1966 i.e. a net
loss to the balance of payments of £5 million.
7. The effects of the loss of Hong Kong on the visible account would depend to a major extent on the use (if any) to which the resources currently used for exports for Hong Kong were put (and at what speed) and how far
United Kingdom resources were fully employed at the time. The extreme
worst assumptions might be:-
(a) that imports from Hong Kong would be entirely replaced by
imports from third countries and
(b) that the resources used for exports to Hong Kong would be
-i.e. be unemployed.
put to no use
On this basis the effect on the trade balance would be
less:
Loss of exports
• 66
Import content of exports
(say 25 per cent)
+ 16
say
-
50
Disregarding secondary effects (which in view of the smallness of the figure is reasonable) this £50 million would roughly measure also a loss of
real income (it would be an underestimate in so far as replacement imports
from third countries as is likely to be the case were more expensive
than imports from Hong Kong).
8.
Adding in the assumed net loss of £5 million on invisible account (paragraph 6 above) the effect of loss of Hong Kong on the balance of
payments (pending re-deployment or increased use of United Kingdom resources)
would be adverse to the extent of some £55 million. On worst assumptions there
would be a prolonged loss at this rate.
9.
At the opposite extreme the most optimistic assumptions might be (a) that the resources currently used for exports to Hong Kong
would all be rapidly re-deployed to uses beneficial to the balance of payments (additional exports to third countries or import saving domestic use); and
(b) that a significant proportion say one half of our imports
from Hong Kong would be replaced by increased domestic
production (using resources hitherto unemployed) rather than by
imports from third countries.
-5-
TOP SECRET