SECRET & PERSONAL
letter
FR Barratt Esq CB
HM Treasury
Parliament Street
LONDON SW 1
Mr Cortazzi
cc1
Mr Maud (FRD)
Enclosures: Flags D & E
Flag F
HONG KONG
1.
Thank you for your secret and personal letter of
14 March.
2.
I am glad to learn that you understand our position with regard to Hong Kong's budgetary policies. Philip Haddon-Cave announced his budget for 1977/78 on 2 March and, in case you have not seen what he had to say, I enclose copies of his statement and of a note on the economic background to it. We shall be examining the budget with our Economists and Financial Relations Department with a view to seeing how far our concerns have been met and, if necessary, to influencing next year's budget.
3. I can assure you that we are conscious of the need to ensure that nothing is done to undermine the foundations of Hong Kong's prosperity. This risk is specifically recognized in paragraph 3 of the Planning Paper on Hong Kong, which Stewart copied to Walker with his letter of
21 January. This states that "there is (furthermore) a risk that one of the world's leading financial centres might collapse if the political pressures become too great". This said, Ministers in this Office, including the two previous Secretaries of State, have consistently taken the view that there is scope for substantial improvements in labour and social conditions in Hong Kong without prejudicing the Colony's prosperity.
4. You mention in your letter that the possible financial implications for the UK are one reason why we should be
SECRET & PERSONAL