THE HONG KONG ECONOMY
UNCLASSIFIED
1. Manufacturing is the major economic activity in Hong Kong,
accounting for 44% of employment and 26% of total economic output.
Trading activities (including tourism) account for 20% of employment
and 23% of output, financial and business services for 7% of employ-
ment and 20% of output, and construction for 7% of employment and
6% of output. In 1978, the per capita GDP was £1,455, inflation 6%,
unemployment 2.5% and the average industrial wage was £103 per month.
2. Despite this sound economic base and underlying prosperity, the
Hong Kong economy was encountering certain problems at the beginning
of 1979. Growing prosperity had led to increased consumer spending.
This, together with a boom in the construction industry, had caused
imports to rise sharply while diverting resources away from the
export manufacturing sector. The visible trade gap widened sharply
in 1978, and the exchange rate of the Hong Kong dollar fell. There
were indications that a fully employed economy was becoming over-
heated, and inflationary pressures were building up.
3. In his budget for 1979 introduced at the end of February, the
Hong Kong Financial Secretary proposed measures to deal with these
problems: they included
(i) a reduction in the rate of growth of government expenditure,
particularly on capital projects;
(ii) planned budget surpluses in order to reduce the money supply;
(iii) measures to reduce the credit-creating potential of the
Government's own reserves; and
/(iv)