CONFIDENTIAL
MR BLAKER'S MEETING WITH SIR MURRAY MACLEHOSE: 11.30 am FRIDAY 11 JANUARY
BRIEF NO.7: THE HONG KONG ECONOMY:
WORKS PROGRAMME
IMPLICATIONS FOR THE PUBLIC
1.
At the beginning of 1979, the Hong Kong economy was showing
signs of dangerous overheating. During the previous year a rapid
growth in domestic demand (in both the public and private sectors),
particularly from the construction industry, had drawn resources
away from the export sector. Full employment and growing prosperity
led to increased consumer spending and a sharp rise in imports.
Despite an increase of 14% in exports, the visible trade gap in 1978
had widened sharply to HK$9,132 million (1977: HK$3,868 million).
2. The 1979 budget therefore included measures to slow down the
growth of demand by reducing public works targets; by limiting the
extent to which the Government's Hong Kong dollar balances could be
used as a base for domestic credit creation; by limiting the sources
of credit available to developers; by maximising land sales; and
by interest rate adjustments.
3. Whilst these measures have been reasonably effective (exports
this year have grown faster than imports), the problem of excess
demand persists. Rapid increases in wages and in the price of con-
struction materials lifted the labour and material cost index last
summer to a level 43% higher than the previous year and the tender
price index for Government contracts in the third quarter of last
year was 32% up on the same quarter the previous year.
CONFIDENTIAL
/Public Finances
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