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real terms for the year as a whole. Nevertheless it is illustrative that the growth rate in domestic exports dropped from 18 per cent in real terms in the first half to about 6 per cent in the second. The distribution within industry was uneven with some sectors like garments and watches continuing to gain and others like spinning and weaving to decline. The tertiary sector continued to grow.
7. There was a very strong and to some extent speculative demand for real estate and a high level of construction. These reflect the market's view of Hong Kong as a place for business or residence. But there have been disruptively steep rises in the level of commercial rents and rents for new flats (domestic rents of sitting tenants are controlled). Parallel to the real estate boom there was a boom on the stock market with the Hang Seng Index rising from 879 to a high of 1,655 during the year.
8. In sombre contrast to these hectic features of 1980, the rate of inflation (largely imported) has been 15 per cent. Real wages probably fell slightly in 1980 after increasing by 10 per cent in 1978 and 3 per cent in 1979. Unemployment, fed by immigration, had increased to 3.7 per cent by September 1980 as against 2.8 per cent a year earlier, and I have no doubt the trend has continued in the last quarter. Export prospects for 1981 depend heavily on economic activity in the US and are not immediately encouraging.
Domestic
9. The budgetary situation was strong and after providing for a substantial surplus it was possible to fund all the expansion planned in the Government's programmes for Housing, Education, Medical and Health Services, Social Welfare and Public Works. There were two "firsts" during the year. Completion of public housing at last reached a fairly satisfactory level of about 33,000 units (double the previous year) with the prospect of maintaining or improving on it, and 1980 was the first year at which all children under the age of 15 had free and compulsory places in school.
10. With the growth of population outside the old urban area there has been a danger of the highly centralised system of administration becoming insensitive to local district needs. A green paper was published on a reform of district administration providing for greater devolution of official authority and the creation of Advisory Boards in each district which would include elected. elements. This was well received and the reforms will be implemented over the next two years. Meanwhile the New Towns are growing rapidly out of the ground, and the Government is grappling with the problem of making cohesive communities out of their residents.
11. The creation of an independent Standing Commission on Salaries and Conditions of Service, and the high standard of its work, has considerably eased staff relations within the public service.
12. The local and UK press featured one or two take-overs of firms previously controlled by old-established expatriate British firms as racially or even politically motivated. This was not the case. But the rapid growth of Hong Kong in the last 15 years has resulted in new fortunes and access of new local financial muscle and some adjustment in the control of public companies was inevitable. It may even prove beneficial.
13. When the decision was taken to build the Mass Transit Railway (MTR) in 1972 it symbolised confidence in the colony's future and determination to improve quality of life. In 1980, the first section of 15.6 kilometres was completed;
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