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COCONFIDENTIAL
HONG KONG ECONOMY
INTRODUCTION
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, Hong 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 19/1, Hong Kong's reserves (official and private) were substantial even though 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, liong 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 shortfalls by raising taxation or by borrowing. In consequence, while recognising the importance of making further strides in the fields of housing and social services, it is becoming increasingly concerned with containing public expenditure.
2.
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 equivalent, in value terms, to as much as twice the gross domestic product.
CONFIDENTIAL
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