4
CONFIDENTIAL
13. With a view to achieving better understanding of the Hong Kong scene we have supplied comprehensive facts for the record in answer to a steady stream of Parliamentary Questions, and I am most grateful to Lord Goronwy Roberts and Mr. Ennals for the stout use made of them in both Houses. A continuing programme of visits by MPs and selected journalists has had the same objective. At your suggestion, senior officials and myself have sought personal contact with Parliamentary and extra-Parliamentary groups concerned about Hong Kong. Hong Kong has a good case to present and I have been encouraged by advice that some progress has been made. However I think we must resign ourselves to an ebb and flow in the tides of criticism and compliment, which can quickly change direction and pace and will require constant attention.
14. I have constantly to beware of attempting to meet criticism or pressures in the UK of a minor or ephemeral nature by clumsy footwork in Hong Kong. Whatever action we take here must be seen locally as justified on its merits in Hong Kong's own interest. Whenever we take steps which are seen here as a sop to opinion 10,000 miles away, the Government's credibility is reduced, with the dangers which flow from this. I am sure that this point is well taken in the Department.
15. I believe some UK attitudes to be coloured by an unsubstantiated assumption that the UK loses money on the Colony, because recently it has run a trade deficit averaging about £70 million a year. We have put in hand detailed studies and the results so far suggest that, even on a purely bilateral basis the deficit, plus the cost to Her Majesty's Government of the new garrison, is more than offset by invisibles. Whatever the eventual outcome of this study I think such accountancy only part of the picture. Hong Kong offers a market of about $2,200 million a year for industrial goods and raw materials which will rise fast; its imports from China finance over one-third of that country's imports from third countries including the UK; it provides a trading platform on the edge of the biggest country in the world and in the centre of the Western Pacific, an area likely to develop as quickly as any other in the next decade, except perhaps the Middle East. There is a built-in bias in favour of the UK. Consequently UK exporters should be urged to pay Hong Kong more attention as a market, as an entrepôt and as a base for operations in the Pacific area, as well as a shop window. For this reason, I attached great importance to the visit in September of the Secretary of State for Trade, who I believe left fully sharing the above view. We have a vigorous and well directed UK Trade Commission in Hong Kong, and UK exporters ready to make the effort and to assure the necessary supplies can expect all possible official help from it.
16. The last two years brought home to me how totally dependent the economy of Hong Kong is on foreign markets. As world recession deepened and demand dropped in America and Europe, the value of Hong Kong's domestic exports was 12.4 per cent less and the volume 15.7 per cent less in the last quarter of 1974 and the first quarter of this year than the corresponding period a year previously, and a drop in economic activity resulted of a sharpness and depth not experienced before in modern industrial Hong Kong. In these circum- stances the traditionally good and pragmatic relations between management and labour and the ingenuity and vigour of the former and realism of the latter showed up extremely well. Everything possible was done to maintain employment by work sharing, by trimming margins and by searching for new markets. Timely legislation and the good sense of employers assured proper redundancy payments where redundancy was inevitable. But at the trough in March, the number of unemployed was probably over 10 per cent, or 190,000 (by the American method
CONFIDENTIAL