CONFIDENTIAL
5.
ng Kong had moved earlier to bring banking activities under the
sort of control (e.g. as to liquidity ratios or restriction of bank
investment in property speculation) which is normal nowadays. And
Hong Kong is extreLely vulnerable to outside influences on the
whether from political scares or from a closing up of
markets. There is always the threat that the bubble may burst.
Against this, opinion in Hong Kong can and does argue that
their policies have worked, and have enabled them to absorb more than
a million immigrants since the war; that their standard of living
is second only to Japan in Asia: that if the capital which has
built up employment opportunities were driven away, the taxable
capacity which has enabled them to be housed and looked after would
wither. And it certainly will argue that since Her Majesty's
Government is unwilling to help solve the development problem
(and we would obviously find it difficult to divert any part of our
scarce Aid Programme resources to Hong Kong) they had better leave
Hong Kong to solve it in its own way. This is a traditional
attitude in Hong Kong, and it has been heightened by our requirement
of a substantially increased defence contribution.
6.
Hong Kong tends to argue that she is now entering a period of
deficit financing; her greatly increased housing programme, education
and likely future commitments in the field of water supplies and of
mass public transport (e.g. underground railway) being the main
factors which will contribute to this.
However, the Government's
general reserves (of the order of £80m.) are capable of taking the
strain of a series of small deficits.
Money
7. Hong Kong has no central bank, and currency is issued by
designated commercial banks against the cover of assets held in the
Exchange Fund, The monetary system has withstood without great
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CONFIDENTIAL