CONFIDENTIAL
This buoyant economy is the basis of the economic and political
future of Hong Kong. The Governor stresses quite rightly the
dangers of a world recession.
We have to bear this central concern
in mind in dealing with the sometimes tiresome concerns of Hong
Kong about the protection of their trade, including preferences
in the EEC.
5.
The Governor reports in his paragraph 6 that Mr Davies's
statement of 4 December, that we would press most resolutely for
the elimination of discrimination against Hong Kong during the
EEC's Annual Review in 1974, has blunted the edge of resentment
in Hong Kong, but that trouble may be expected if nothing can be
achieved for 1975. I think the first point is understated.
The
resentment of Hong Kong manufacturers has shown little sign of
being blunted. But it is certainly true that if, after Mr Davies's
statement, we do not achieve anything in the Annual Review, there
will be very great resentment in Hong Kong. We have therefore
given a hostage to fortune. There has been some tendency in
minuting in Whitehall to take the line that, while we will do
what we have promised and will urge the Community to agree to a
change, we have no hope of success and should be resigned to this.
I cannot judge whether this assessment is true but I think the
attitude is dangerous. Presumably our chance of success must
continue to depend to some extent on the price we are willing to
pay, which is under our control.
Sterling
6.
The Governor's passage on sterling balances ignores the
fact that the interim extension of the sterling guarantee has turned
out to be of great value to the Hong Kong Government. It guarantees
the Hong Kong Government's holdings at US$2.42, and, because of the
/fall of
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