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government revenue, a substantial proportion of which is obtained from the sale
of land leases. The ability of the government to embark on new development
projects, such as, for example, a new airport and the extension of the Mass Transit
Railway system, has thus been curtailed.
4. Both the value of the Hong Kong dollar and investment in capital equipment and
long term property ventures seem likely to remain depressed until confidence in
the political future of Hong Kong is re-established. However, while political
uncertainties have caused some outflow of capital to other countries, notably the
United States, Europe and Singapore, this has not yet been great. Considerably more important has been the transfer of Hong Kong dollar deposits to foreign currency
deposits. The latter accounted for about Hong Kong $100 billion at the end of
1982, an increase of 231 per cent during the year. Hong Kong dollar deposits
showed little change during the same period. During the first 6 months of 1983
foreign currency deposits have risen by a further 25 per cent to Hong Kong $123 billion
while Hong Kong dollar deposits have declined by 3.1 per cent to Hong Kong $131 billion
The movement away from the Hong Kong dollar therefore has continued during the
current year but appears to have slowed significantly.
5. While an element of the movement from local to overseas currency will reflect
restocking to meet increased world demand for exports (largely from the United States), much the greater part of the movement appears to represent a deliberate
decision by local investors away from the Hong Kong currency, no doubt both to
protect themselves from the effects of its continuing decline in value and also to
prepare for the movement of funds away from the territory, if this becomes necessary.
This in turn, of course, is reflected in the diminishing value of the Hong Kong dollar
itself which, it is generally reckoned would be valued at between US $ 6 and 6.5 if
political uncertainties were non-existent.
6. It therefore seems that while a significant amount of capital has already
flowed out of the territory, this has been balanced to a large extent by incoming
overseas investment, particularly from the United States. There is, however,
a rapidly growing reservoir of funds which, while as yet remaining in the territory, have been converted into overseas currencies (largely the US dollar) and which could
rapidly be transferred overseas if political developments caused a panic.
The
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CONFIDENTIAL