HKK 13/2
CONFIDENTIAL
DS (L)396
Departmental Series
Hong Kong & Indian Ocean Department DS No 2/74
HONG KONG: SOCIAL AND ECONOMIC SITUATION
(The Governor of Hong Kong to the Secretary of State
for Foreign and Commonwealth Affairs)
Hong Kong 28 May 1974
Sir
This despatch describes the social and economic situation confronting the government this summer. It is characterised by very sharp rises in the cost of living in recent months with which wages have not kept pace; by uncertainty about export possibilities in Hong Kong's major markets which are all affected to a greater or lesser extent by inflation and the cost of oil; and finally by tight liquidity, itself a reflection of a world-wide situation but which locally is still aggravated by the after-effects of the stock market rise and subsequent fall in the autumn and spring of 1972/73. This despatch is concerned with the first of these characteristics but the other two must not be lost sight of because they affect the first.
2.
Over the ten years up to the end of March 1974 real wages have increased by 41% and the change in the standard of living of the population has been striking. But this figure includes a drop of 11% in real wages in the last year. In the last two years two developments broke this overall pattern of progress:-
a)
From the autumn of 1972 the Chinese Government changed its pricing policy and began to charge world prices for the commodities, including in particular food, which it sold to Hong Kong. The impact on the cost of living of this perfectly legitimate change was aggravated by its coinciding with a high point in world prices for all commodities but in particular foodgrains and meat. It was further aggravated by local climatic conditions in the summer of 1973.
b) By October 1973 the rise in the cost of living had
halted and with good export prospects there was every hope of wages catching up with the cost of living and the rise in living standards being resumed. But at this point the oil crisis struck bringing a sharp further twist to the rise in prices of all imported goods, including food from China. It also brought new
uncertainties to export prospects. In consequence real wages have failed to rise as they would otherwise have done.
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CONFIDENTIAL