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Hong Kong Government's reserves. A serious problem arises
because the UK Sterling Guarantee comes into effect when sterling
drops below US $ 2.40, whilst the Hong Kong Government's guarantee to
the banks relates to an exchange rate of US $ 2.60. The Hong Kong
and British Governments have made some progress in alleviating the
problem by permitting the banks gradually to diversify some of their
holdings out of sterling without prejudice to the Sterling Guarantee
Agreement.
Aid
7. In the past, we have given little aid to Hong Kong, whose needs
are rather different from our normal developmental criteria.
Ministers
have, however, recently reconsidered this question in the light of
our policy that the reasonable needs of our Dependent Territories should
be a first charge on our aid programme and the fact that some 80% of
the population of our remaining dependencies are in Hong Kong. There
are two main needs: the first is to develop the Colony as a place
where the people wish to live and work; the second is a "hearts and
minds" operation, emphasising the value of the British connection.
The Hong Kong Government can itself largely look after the first
requirement. It is over the second where judicious British aid can
sometimes help, particularly in the education field. Ministers have
therefore agreed to provide £500,000 for equipment and books for the
new Hong Kong Polytechnic, in addition to £400,000 agreed earlier for
technical institutes. An announcement of the aid to the Polytechnic made
by Mr Royle in Hong Kong in November was well received.
The Mass Rapid Transit Scheme
8.
In June 1972, the Hong Kong Government decided in principle to
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