Mr Male
·
Sir D Watson
Flag
1.
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CONFIDENTIAL
The 'Reffe
R&R
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ANNUAL REVIEW FOR 1974:
HONG KONG
I attach a copy of Sir Murray MacLehose's third annual report from Hong Kong. He postponed submitting this until after the introduction of the 1975/76 Budget (Hong Kong telno. 225).
2.
I think Lord Goronwy-Roberts may wish to have a sight of this as soon as possible, and I am therefore sending him a copy now. I shall be submitting the Department's considered comments' in the normal way after Easter, in time for Lord Goronwy-Roberts' meeting with the Governor on 9 April.
3.
In the meantime I have sent the despatch for printing.
26 March 1975
Сс
PS/Lord Goronwy-Roberts
млиль
PL O'Keeffe
Hong Kong & Indian Ocean Dept.
ProMal
А дото
good despatch.
Substantial
The ecomic set-back
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clearf
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persistent than thang Kay. had at first Coped.
But it is an ill wind
for as the John says day King has wally been shaken out of traditional financial altitudes,
ad considered caution rather than in led conservation is a defensible attitude.
Done Wall
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FOREIGN AND COMMONWEALTH OFFICE
HKK 13/5
DIPLOMATIC REPORT No. 189/75
Foreign and Commonwealth Office (Secret) and Whitehall (Secret) Distribution
HONG KONG 15 March, 1975
HONG KONG: ANNUAL REVIEW FOR 1974
The Governor of Hong Kong to the
Secretary of State for Foreign and Commonwealth Affairs
SUMMARY
World-wide recession and consequent pause in Hong Kong's economy and drop in revenue has placed unforeseen difficulties in the way of financing Hong Kong's plans for social betterment (para- graphs 1-3).
2. These problems cannot be solved at the moment by massive increases in taxation because of Hong Kong's peculiar circumstances (paragraph 4).
3. It is disappointing and bad luck that this economic situation should have occurred just when many things appeared to be going right or getting better: social programmes; Police Force; Independent Commission Against Corruption; Mutual Aid Committees; recreation and sport (paragraph 5).
4. Rise in costs and drop in revenue produced a very large deficit which was filled in the Budget by a rise in taxes, loan finance and a cut-back in estimates. The whole package was designed to maintain as much momentum as possible in unpromising economic and fiscal conditions (paragraphs 6-7).
5. The Budget broke new ground in various ways (paragraph 8). 6. It was the most that could de done in the circumstances, but eventually a higher level of revenue is essential (paragraphs 9–10).
7. In spite of current stringency momentum can still be maintained in housing and some other fields, in particular law and order, but generally speaking a pause cannot be avoided (para- graph 11).
8. The real danger lies in the reaction of the population to a lower standard of living, some unemployment, and fear of what the future holds. The situation has been eased by flexibility and by a slight drop in the cost of living (paragraph 12).
9. The helpful attitude of the Chinese Government (para- graph 13).
10. Nevertheless the population is querulous, nervous and could explode. We must be very careful this year (paragraph 14).
11. This situation should be remembered when dealing with Hong Kong this year. The most difficult issue will be the Defence Costs Agreement (paragraph 15).
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(Confidential)
Sir,
Hong Kong,
15 March, 1975.
By the end of 1974 the down-turn in the Hong Kong economy and the social pressures generated by it dominated all other issues here. For this reason I have delayed this despatch until the outcome of the Budget for 1975-76 was known.
2. After the boom years of 1968-73, in 1974 Hong Kong tightened its belt, in 1975 this is being further tightened and the pinch is hurting. So far the population has reacted with typical realism and flexibility. But the principal problem confronting my Government in 1975 will be how to maintain the cohesion, confidence and loyalty of the population during the period of unfamiliar stringency which lies ahead.
3. The problem is all the more difficult to handle because the impact of world-wide recession, with consequent loss of revenue, has coincided with the first years of far-reaching plans for social betterment. The latter are necessary in themselves, and have aroused public expectation and support, but they have also increased the Government's demands on the economy. The problem has been how to finance them in present circumstances without inhibiting the investment and economic growth on which the rise in revenue and consequently the implementation of these plans ultimately depend, and also without provoking a backlash from the tax-paying public that will put the very principle of the plans at risk.
4. This problem has had to be solved within the peculiar fiscal limits of the Hong Kong situation. These are:
(a) Firstly that Hong Kong can only retain business and attract investment, and thus maintain the livelihood of the population, if the economic environment is more attractive and profitable than in other similar places such as Korea, Taiwan, Singapore and Indonesia; and the political question mark that hangs over Hong Kong's long-term future requires an extra margin in Hong Kong's favour to make investment comparatively attractive.
(b) Secondly, that there is so much to be done to make good the deficiencies of life thrust on Hong Kong by the influx of population and so little time to do it before the early '80s when the shadow of the end of the lease in 1997 will begin to fall across the economy.
In this situation there is natural fear of killing the goose that lays the golden eggs and by an over-bold fiscal policy, scaring off the investment on which all else depends. Lee Kuan Yew once put the dilemma to me by saying "I am a socialist, but I must have millionaires ". The same could be said of most developing
countries.
5. It is disappointing and frustrating that this economic conjuncture should have occurred at this moment in Hong Kong's history. Many things appeared to be going right or getting better:
(a) the major programmes of expansion of housing, education, social welfare and medical and health services and transport had been drawn up and accepted in public debate and the machinery of Government overhauled and somewhat recast to ensure their implementation and effective control.
(b) The Police Force, under a new Commissioner and Deputy Commissioner, has been significantly reorganised, its relations with the public have
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