17.
RESS VLO
HACK 01/4
NO. 51
CONFIDENTIAL
Mr Murra
minute.
Mur
קן
Flag A
1.
As you know, the Hong Kong economy is going through a rather difficult patch, due largely to internally generated inflation.
2. In the attached letter of 20 November the Governor describes the salient features of the present situation as excessive growth in the money supply, imbalance between the growth rates of retained imports and domestic exports, erosion of the value of the Hong Kong dollar, a very tight labour market and a tendency for domestic demand to draw off resources from the export sector
which would otherwise have corrected the imbalance.
3. The Bank of England are also somewhat concerned at the way things are going. Mr Kirby, who covers the whole of East Asia, telephoned last week to say that the Bank had noticed a number of rather worrying signs, among them the recent stock market fluctuations, the liquidity problems of Sun Hung Kai Ltd, and a report, which had not been in the press that one of the smaller Chinese banks had got into difficulties through operations in Indonesia. The Bank saw no cause for alarm but thought the situation would need watching.
4. In paragraph 7 of his letter, the Governor describes the action taken by the Hong Kong Government to reduce the growth of the money supply; in paragraph 8 he refers to the recent increases in interest rates which should dampen the demand for loans and help to strengthen the exchange value of the Hong Kong dollar. He then warns of the probability that the Government will come under increasing pressure to make its own contribution in the public sector "not by cutting its targets, but by re-phasing some projects
In the next and by containing growth in the public services". paragraph he adds: "While I certainly do not think that anything at all drastic is called for, we will certainly have to look very closely at the growth in demand on both the construction industry and manpower that the estimates for 1979/80 will make". He gives
CONFIDENTIAL
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