8.
CONFIDENTIAL
- 3
In sombre contrast to these hectic features of 1980, the rate of inflation (largely imported) has been 15%. Real wages probably fell slightly in 1980 after increasing by 10% in 1978 and 3% in 1979. Unemployment, fed by immigration, had increased to 3.7% by September 1980 as against 2.8% 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 U.S. 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 & 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 2 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 U.K. press featured one or two takeovers 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
CONFIDENTIAL
/ financial