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INCLUDING FINANCIAL GUARANTEES ON PROJECT LOANS AND CAPITAL (ON-CALL) SUBSCRIPTIONS TO CAPITAL STOCK. GUARANTEES OF LOANS AND CALLABLE CAPITAL ARE AUTHORISED UNDER SECTION 7 OF THE OVERSEAS DEVELOPMENT AND COOPERATION ACT 1980 WITHIN A PRESENT LIMIT VARIABLE BY STATUTORY ORDER OF POUNDS 90 MN. THIS LIMIT MAY SOON NEED TO BE INCREASED (SEE BELOW). HONG KONG IS CURRENTLY IN RECEIPT OF FOUR LOANS FROM THE ADE, WORTH A TOTAL OF US DOLLARS 72.2 MN: IN ADDITION THERE IS CURRENTLY A CONTINGENT LIABILITY IN RESPECT OF CALLABLE CAPITAL OF US DOLLARS 45.7 MN. A GENERAL CAPITAL INCREASE (GCI) IS PRESENTLY UNDER DISCUSSION AT THE ADB, WHICH WOULD INCREASE THIS CONTINGENT LIABILITY (POSSIBLY BY UP TO US DOLLARS 60 MN).
ECGD EXPOSURE
12. ECGD'S CURRENT COMMITMENTS IN HONG KONG AMOUNT TO ABOUT DOLLARS 3 BN. THEY DO NOT EXPECT TO BE ABLE TO SCALE DOWN THIS FIGURE DURING THE PERIOD UP TO 1997 INDEED, COMMITMENTS ARE EXPECTED TO GROW. IF CLAIMS AROSE ON COMMITMENTS OF THIS MAGNITUDE, THEY COULD WIPE OUT ECGD'S ACCUMULATED RESERVES AND THREATEN THE VIABILITY OF THEIR WHOLE INSURANCE FUNCTION, WITH MAJOR CONSEQUENCES FOR THE EXCHEQUER.
B. POSSIBLE CHANGES
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13. HONG KONG'S PROSPERITY UNTIL NOW AND, IN PARTICULAR, THE GROWTH OF MANUFACTURING INDUSTRY WHICH EMPLOYS THE BULK OF THE LABOUR FORCE, AND THE DEVELOPMENT OF A FLOURISHING REGIONAL FINANCIAL CENTRE, HAVE OWED MUCH TO FEELINGS ON THE PART BOTH OF THE RESIDENT CHINESE POPULATION AND OF OVERSEAS BUSINESS INTERESTS, THAT AN INTERNAL POLITICAL REGIME CONDUCIVE TO THE CONTINUE FAVOURABLE GROWTH OF BUSINESS WOULD PREVAIL AT LEAST FOR THE TIME TAKEN TO RECOVER THE INITIAL OUTLAY ON MOST INVESTMENTS. WHILE MANY INDUSTRIAL INVESTMENTS CAN BE PAID OFF IN SHORT PERIOD CONCERN HAS GROWN PARTLY BECAUSE THE PERIOD OF CROWN LAND LEASES IN THE NEW TERRITORIES IS NMW LESS THAN THE CUSTOMARY 15 YEAR MORTGAGE. BETWEEN NOW AND 1997, HOWEVER, UNCERTAINTY ABOUT THE FUTURE STATUS OF THE TERRITORY - FOR SO LONG AS NO CLEAR CUT SOLUTION EMERGES OR PERCEPTIONS ABOUT THE IMPLICATIONS OF ANY AGREEMENT WHICH MAY BE REACHED BETWEEN HMG AND THE PRC ARE LIKELY TO HAVE AN INCREASING IMPACT ON-BUSINESS SENTIMENT AND HENCE ON NEW INVESTMENT AND THE DISPOSITION OF CAPITAL ALREADY INVESTED IN HONG KONG OR GENERATED FROM NOW ONWARDS. WHILE, THEREFORE, THERE ARE NO STRONG GROUNDS FOR ANTICIPATING SIGNIFICANT MODIFICATION TO THE INSTITUTIONAL ARRANGEMENTS ALREADY DESCRIBED, IN THE YEARS UP TO 1997, IT IS MUCH LESS CERTAIN THAT THE BUOYANT AND EXPANSIONARY CLIMATE FOR BUSINESS WHICH HAS PREVAILED FOR SO LONG CAN BE MAINTAINED UNTOUCHED BY THE PROSPECT OF POLITICAL CHANGES OF THE KIND EXAMINED BELOW OR, POSSIBLY, EVEN MORE RADICAL. PARTICULARLY IF THE PROCESS OF NEGOTIATION IS SLOW, CONFIDENCE CAN BE EXPECTED TO BECOME INCREASINGLY SHAKY.
(1) SIMPLE RECOGNITION OF CHINESE SOVEREIGNTY:
14. IF CHINESE SOVEREIGNTY OVER HONG KONG WERE TO BE RECOGNISED BY HMG BUT FULL BRITISH ADMINISTRATION CONTINUED, THERE WOULD BE
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