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SECURITY CLASSIFICATION
Top Secret.
Secret,
Confidential.
Restricted. Unclassified.
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In Confidence HONG KONG ECONOMY
Introduction and Summary
Type 1 +
FROM
Telephone No. Ext.
Department
In re-negotiating the Defence Costs Agreement, it is
important that Hong Kong's conventional image of unremitting
prosperity be set against the background of the events of the last 3-4 years. During the 1960's, Ilong Kong achieved a very
high rate of economic growth and made substantial inroads into
the daunting problems thrown up by the rapidly increasing,
largely refugee, population. And this was achieved without amassing a large public debt (internal or external); indeed, by 1971, Hong Kong's reserves (official and private) were sub-
stantial, even though the tax rates were low. But since 1971,
Hong Kong has suffered a series of set-backs: the flotation
of sterling to which the Hong Kong dollar had been linked; the
stock market crisis; the international commodities boom and the
failure of world grain harvests; and now the recession. As a
result, Hong Kong no longer has full-employment; its growth
rate is zero; the balance of payments is basically unstable;
the reserves are almost exhausted; the budget is in deficit and
expenditure commitments are high; the community's patience is
stretched to the limit; and the economic outlook is uncertain.
Given Hong Kong's heavy dependence on external trade and the
confidence of overseas investors, the government sees very real difficulties in covering continuing revenue short falls
by raising
taxation or by borrowing. In consequence, while recognising the importance of making further stridon in the fields of housing and social services, it is becoming increasingly concerned with containing public expenditure.
External Dependence
Hong Kong has virtually no natural resources and is
heavily dependent, therefore, on trade with the rest of the
world.
The extent of this dependence can be gauged from the fact that its external visible trade (imports and exports) is
/alone
CONFIDENTIAL