0003230
"G.F. 323
1
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to revert to a 24 hour supply. This we have done; but as a prudent precaution we have added to the supply saline water from Plover Cove, our newest and largest, reservoir constructed from an arm of the sea, in which the water enclosed still has a high salinity. The resulting mixture is salty to the taste (though well below the maximum acceptable to the World Health Organ- isation) and the local communists have worked up a campaign to stop this 'contamination', claiming that it is injurious to health. Their motives are clearly to force us to use up our own resources so that we become dependent on further supplies from China on their terms; and, as a further move in this direction they have, without offering any explanation, reduced the maximum daily draw-off from 62.5 to 55 million gallons. They have also so far refused to accept payment for the water drawn in November, December and January because we have refused to risk sending a foreman into Chinese territory over the Man Kam To Bridge, (as we used to do, but are under no obligation to do) to reconcile accounts. There remains the possibility that they may cut off supplies completely. In that event and given normal rainfall next summer we can hope to get by, with rationing, until the salinity in Plover Cove is sufficiently reduced by the inflow of fresh water to allow it to be used without dilution.
28.
In the economic field, the Colony's productive performance has remained substantially unimpaired. Exports of domestically produced goods in 1967 were up by 16.9% on 1966. This is the highest annual increase this decade. Order books for 1968 deliveries are also reported to be in a satisfactory state, but on the other hand, profit margins generally may have been materially reduced. Imports only exceeded the 1966 level by 3.5% for three reasons: namely, the interruption of food supplies from China during the summer months; the running down of manufacturers' and traders' inventories; and the continuing depression in the building and construction industries. Recently, however, the China trade has shown signs of recovery. This has had a beneficial effect on food prices which are now almost back to their pre-May levels. Probably the most significant development recently, however, was the beginning of a restoration of confidence: after falling in May, June, July and August, bank deposits have increased and the currency in circulation has declined now for four successive months. The net amount of money estimated to have been transferred out of the Colony over the year had declined to $165 million by the end of October, compared with the peak of $450 million at the end of July. By the end of November the position had further improved: a net amount of $140 million had been transferred in.
29.
Generally, then, our economic and financial situation had begun to take a more favourable turn and it was highly unfortunate that a further severe shock had to be absorbed as a result of the devaluation of the pound sterling by 14.3%. The Colony's official reserves and those of the banking system are at present, largely as a consequence of our colonial status, maintained wholly in sterling. Indeed, Hong Kong is one of the world's largest holders of sterling, with between £350 million and £400 million held in that currency. Moreover, the greater part of the trading and financial relationships of both the business world and the private citizen are based on sterling and were, until now, predicated on the assumption of a constant rate of exchange between sterling and the Hong Kong dollar.
30. The devaluation of sterling imposed an immediate and unavoidable loss on the Colony which may be estimated at £60 million. The Hong Kong dollar was itself in no way under-valued in terms of international exchanges and, as we rely almost wholly on imported supplies, internal prices are peculiarly susceptible to changes in exchange rates. We were faced, therefore, with the dilemma of either, on the one hand, following sterling down, thereby imposing an immediate increase in costs (almost to the full extent of devaluation) and a consequential reduction in our hardly won standard of living; as well as, in the field of commerce, an immediate, fairly severe and totally unnecessary worsening of the terms of trade; or, on the other
17.
£28m
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