SECRET
GR 500
SECRET
FM HONG KONG 10083DZ JUN 83
TO PRIORITY FCO
TELEGRAM NUMBER 791 OF 10 JUNE
TOP COP
MKK0401
(338)
RECEIVED IN REGISTRY NO 51
DEN
INDEX
17 JUN 1983
ROTISTRY
PA
Action Takon
INFO PRIORITY PEKING (PERSONAL FOR AMBASSADOR)
FUTURE OF HONG KONG
по
1. MINISTERS MAY FIND IT HELPFUL TO HAVE A BRIEF SUMMARY OF THE
PRESENT SITUATION IN HONG KONG, PARTICULARLY AS REGARDS THE STATE
OF CONFIDENCE.
2. THE ECONOMY IS STILL SUFFERING FROM THE EFFECTS OF THE WORLD RECESSION, WHICH CAME LATE TO HONG KONG, AND THE COLLAPSE OF PROPERTY PRICES WITH ITS CONSEQUENCES FOR THE DOMESTIC FINANCIAL
SECTOR. BUT THERE ARE NOW SIGNS OF AN EXPORT-LED RECOVERY. THE VOLUME OF DOMESTIC EXPORTS IS PICKING UP, AFTER HAVING FALLEN LAST YEAR: UNEMPLOYMENT IS ALMOST CERTAINLY FALLING: THE STATE
OF MANUFACTURERS' ORDER BOOKS IS GENERALLY ENCOURAGING. THE PROSPECTS LOOK BRIGHT FOR FURTHER IMPROVEMENT LATER IN THE YEAR.
3. THE UNDERLYING ECONOMIC SITUATION HAS THEREFORE IMPROVED. BUT THE EVIDENCE OF RECOVERY HAS SO FAR HAD LITTLE EFFECT ON THE MARKETS.
THE PROPERTY SECTOR REMAINS DEPRESSED. THE HANG SENG INDEX IS
AROUND HALF OF ITS MID 1982 PEAK AND THE VOLUME OF TRADING HAS BEEN CONSISTENTLY LOW IN RECENT MONTHS. BUT THE MAIN PREOCCUPATION IS THE SHARP DECLINE IN THE EXCHANGE VALUE OF THE HONG KONG DOLLAR.
THE TRADE WEIGHTED INDEX FELL FROM 89.5 AT END MAY 1982 TO 73.8
AT END MAY 1983. THIS HAS BEEN CAUSED PARTLY BY THE SURGING STRENGHTN OF THE U.S. DOLLAR BUT ALSO BY INCREASING ANXIETY ABOUT THE FUTURE WHICH HAS ENCOURAGED A SWITCH FROM HONG KONG DOLLARS TO U.S.
DOLLAR DEPOSITS.
4. PUBLIC CONFIDENCE IS FRAGILE. THE CAMPAIGN WAGED BY THE CHINESE OVER THE PAST NINE MONTHS HAS HAD A CUMULATIVE IMPACT. IT IS NOW WIDELY ACCEPTED THAT THE CHINESE INTENTION IS TO RECOVER SOVEREIGNTY AND CONTROL OVER HONG KONG IN 1997. ALTHOUGH THERE ARE WIDESPREAD DOUBTS ON WHETHER THIS COULD BE DONE IN A WAY WHICH WOULD (AS THE CHINESE CLAIM) PRESERVE THE TERRITORY'S PROSPERITY AND THE FREEDOMS NOW ENJOYED BY HONG KONG PEOPLE, THERE IS ALSO A GROWING BELIEF THAT A CHINESE TAKEOVER IN 1997 IS INEVITABLE. THOSE IN THE ENTREPRENEURIAL, MANAGERIAL AND PROFESSIONAL CLASSES WHO ARE MOBILE OR POTENTIALLY SO ARE BEGINNING TO MAKE THEIR DISPOSITIONS ACCORDINGLY. THERE HAS ALREADY BEEN A MARKED RISE IN THE NUMBER OF APPLICATIONS FOR RESIDENCE OVERSEAS, IN SOME CASES ACCOMPANIED BY TRANSFERS OF ASSETS. THE NUMBERS ARE NOT YET VERY SIGNIFICANT IN ABSOLUTE TERMS BUT THE TREND IS THERE.
5. THE HONG KONG GOVERNMENT IS MAINTAINING THE LEVEL OF EXPENDITURE ON RECURRENT SERVICES AND INVESTMENT PROGRAMMES DESPITE A LARGE BUDGET DEFICIT IN 1982-83 AND A LIKELY DEFICIT IN 1983-84. IT IS ALSO MAINTAINING THE IMAGE OF A GOVERNMENT CONFIDENT IN THE FUTURE AND GETTING ON WITH THE BUSINESS OF THE DAY. DUT THE NEED TO MAINTAIN CONFIDENTIALITY IN THE TALKS, AND TO AVOID A PUBLIC CONFRONTATION WITH THE CHINESE OVER THEIR PLANS HAS PRECLUDED US
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