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PERSONAL AND CONFIDENTIAL
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the banking and industrial community although it seems quite clear that the Hong Kong Government had little option. There are complaints that it will make the job of exporting harder as Hong Kong's products will be less com- petitive and firms exporting to the United States, with contracts in U.S. dollars, will have already low profit margins further eroded.
The
7. I am not altogether sure why the pressure developed so suddenly. money market here is really so small that it does not require very much to upset it; and I was told by two local bankers that it was nothing to do with the U.S. dollar's weakness in international money markets at the time, but was due to purely local factors, in particular the demand in the banking system generally for HK dollars as Chinese New Year approaches. David Millar of the Chartered Bank told me he thought it could have been avoided if interest rates had come down when the U.S. dollar reached the lower end of the approved variation in the fixed rate; and he thought it a pity it had been necessary to float as, like most other people I have spoken to, he considers it most unlikely that the HK dollar will maintain its present strength against the U.S. dollar for very long. The view is that Hong Kong's exports are bound to be badly affected by world conditions. Hong Kong exporters are looking with concern at the decision by South Korea to devalue its currency; although Taiwan has not followed suit, I see from today's newspaper that they are imposing controls against imports of Japanese goods. If they decide to devalue as well, then the HK dollar will be out on something of a limb.
8. September and October saw a significant turn down in the value of Hong Kong's exports. I am surprised that this did not come earlier in view of what I had been told (and reported in my last letter) about the fall-off in the volume of goods shipped. There has been argument about this, the Marine Department maintaining that there has so far been little change in the tonnage of goods handled through the port so far this year; but Mr. Forsgate of the Hong Kong and Kowloon Wharf Company told me the other evening that there had been a very substantial drop in the volume of cargo handled by his company; and the cargo figures for November, published today, show for the first time a drop in tonnage. Despite this, I gather the November trade figures are better and that the garment manufacturers are doing well, with full order books, in some cases, as far ahead as next June. I fear it is inescapable, however, that an industrial community as dependent upon exports as Hong Kong, however flexible and competitive it may be, must be exposed to the consequences of the current world recession to a greater degree than countries with substantial home markets. The fall-off in exports to its traditional markets can no doubt be offset to some extent by the development of new ones; but unless something startling happens on the international scene, 1975 is likely to be a bad year for both Hong Kong's exports, and this will mean a bad year for British exports to Hong Kong as well.
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Although Government officials here are being pretty "bullish", David Newbigging of Jardines to whom I was speaking the other day told me that he thought Hong Kong industry would go through two very difficult years and that much of it was having to be supported by the banks already,
PERSONAL AND CONFIDENTIAL
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