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CONFIDENTIAL
W126
THE VALUE TO THE UNITED KINGDOM OF THE CONSTITUTIONAL RELATIONSHIP WITH HONG KONG
A.
1.
This paper is in three parts. Part B examines recent work on bilateral current account payments and concludes that both in private and public payments the UK is in deficit with Hong Kong. Further there is a rapidly growing visible trade deficit. Part C looks at those economic relationships specific to the constitutional link and concludes that for 1976 there was an overall disadvantage to the UK, though this is likely to ease as the Defence Costs Agreement proceeds. The number of economic consequences are few and the values involved low. Part D examines UK investment in Hong Kong. Both portfolio and direct investment have been growing rapidly but neither represents much more than 1.5 per cent of the UK overseas total.
B.
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Balance of Payments
Bilateral balance of payments exercises are unusual beasts and few statisticians have great confidence in the results. The most recently published official estinate is for the UK - EEC balance and is qualified heavily by its authors. The major practical pitfall is the basis of payments estimating. It proceeds from a UK - Rest of the World division. As a consequence few reliable statistics are generated on a geographical split whether for countries or regions. Conceptually there are severe problems of allocation since much international dealing is multilateral. Hence, whilst it is not impossible to estimate bilateral flows, they are to be regarded with much less confidence than are global
returns.
2.
There has been reluctance in the past to undertake any exercise on UK/Hong Kong balances though the CSO has given advice on methodology during this year to a privately sponsored exercise. The work was commissioned by a group of Hong Kong private companies and provides essential information for this section of the paper. It would be a lengthy and expensive task to run a parallel exercise in order to check the validity of the results. Much of the information presented was gained as a result of extensive inter- viewing in Hong Kong under the auspices of local companies. The unusual nature of the exercise prevents the calculation of a series of bilateral payments over several years. Available information can only be regarded as broadly indicative of the relationship.
3. The payments calculated are set out below. They describe for 1975 a UK visible trade deficit with Hong Kong of £115m offset by a surplus on invisibles of £119m. Government transactions for defence and interest on official reserves produce an overall current account deficit for the UK of £69m.
/UK
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CONFIDENTIAL