4. THE GREAT MAJORITY OF PEOPLE WHO CANNOT REALISTICALLY EXPECT TO SETTLE ELSEWHERE ARE WAITING ANXIOUSLY FOR SOME OFFICIAL ANNOUNCEMENT ABOUT THE RESULTS OF THE TALKS WITH CHINA. MANY RETAIN A HOPE THAT HMG WILL SOMEHOW FIND A WAY OF HOLDING THE CHINESE TO THEIR PROMISES, PERHAPS THROUGH INTERNATIONAL GUARANTEES. THERE IS ALSO CONSIDERABLE INTEREST IN THE POSSIBILITY OF EXPANDING LOCAL DEMOCRATIC PROCESSES BETWEEN NOW AND 1997, IN THE HOPE THAT THE CHINESE WILL RESPECT WHAT THEY FIND WHEN THE TIMES COMES. THE CHIEF SECRETARY'S ANNOUNCEMENT ON 15 FEBRUARY OF AN INCREASE IN THE NUMBER OF ELECTED MEMBERS TO DISTRICT BOARDS WAS WIDELY INTERPRETED AS A MOVE IN THIS DIRECTION.
5. AT DISTRICT LEVEL, WORRIES ABOUT THE FUTURE SEEM TO BE LESS FREELY EXPRESSED. MANY DISTRICT OFFICERS HAVE REPORTED THAT THE FUTURE IS LESS DISCUSSED, ALTHOUGH WHETHER THIS REFLECTS MORE THAN A MOOD OF RESIGNATION IT IS DIFFICULT TO SAY. A TELEPHONE OPINION POLL CARRIED OUT BY THE HONG KONG GOVERNMENT IN JANUARY FOUND THAT 20 PER CENT OF RESPONDENTS PLACED QUOTE THE FUTURE OF HONG KONG UNQUOTE AS THE PROBLEM OF MOST CONCERN TO THEM PERSONALLY. THIS SHOWED A DROP FROM THE PREVIOUS POLL, IN NOVEMBER 1983, WHEN 27 PER CENT HAD DONE So.
MORALE OF PUBLIC OFFICERS
6. THIS WAS COVERED IN DAVIES' LETTER TO CLIFT OF 13 FEBRUARY. BRIEFLY, WHILE MOTIVATION REMAINS HIGH, THERE IS A WIDESPREAD FEELING OF INSECURITY. MANY PUBLIC OFFICERS TAKE IT FOR GRANTED THAT THERE WILL BE SOME SORT OF COMMUNIST-CONTROLLED GOVERNMENT AFTER 1997, AND THAT THEIR PROSPECTS FOR SERVICE AFTER THAT
DATE MUST BE IN DOUBT.
ECONOMIC INDICATORS
7. DESPITE THE POLITICAL UNCERTAINTY, MOST ECONOMIC INDICATORS HAVE SHOWN SOME IMPROVEMENT.
8. SINCE THE INTRODUCTION OF THE EXCHANGE RATE STABILISATION SCHEME IN OCTOBER 1983, THERE HAS BEEN A SUBSTANTIAL SWITCH INTO HONG KONG. IN THE PAST FEW WEEKS THE EXCHANGE RATE HAS STRENGTHENED TO BELOW THE LINKED RATE OF US DOLLARS 7.80, AND INTEREST RATES HAVE ACCORDINGLY FALLEN BELOW US RATES.
9. INVESTMENT IN PLANT AND MACHINERY WAS VERY SLUGGISH IN 1983 ALTHOUGH THERE WERE SIGNS OF IMPROVEMENT IN THE FOURTH QUARTER. EXPENDITURE ON PLANT, MACHINERY AND EQUIPMENT SHOWED ONLY A MARGINAL INCREASE IN REAL TERMS IN 1983. WITH THE CURRENT RECOVERY OF THE EXPORT SECTOR, INDUSTRIALISTS' RELUCTANCE TO INVEST ON ANY SIGNIFICANT SCALE COULD HAVE SERIOUS CONSEQUENCES FOR THE SIZE AND EFFICIENCY OF PRODUCTIVE CAPACITY AND FOR THE EXTERNAL COMPETITIVENESS OF THE HONG KONG MANUFACTURING OUTPUT IN THE
LONGER TERM.
CONFIDENTIAL