ADVANCE COPIES
HONG KONG AGREEMENT
13
PS
PS/MR RENTON
PS/PUS
MR. GILLMORE.
DH WILSON
HD/ HKD
CONFIDENTIAL
FM HONG KONG
TO DESKBY 181000Z FCQ
TELNO 4186
OF 180935Z DECEMBER 86
INFO IMMEDIATE PEKING
FIFOOT
MR BURROWS, LEGAL ADVISERS MR OSBORNE, NEWS DEPT
JMMEDIATE
HONG KONG • THE CURRENT SITUATION.
SUMMARY.
1. A GREAT LOSS. BUT LIFE GOES ON. CONFIDENCE UNDIMINISHED BUT
TESTS AHEAD.
2. THE WORD MOST OFTEN USED IN DISTRICT OFFICE REPORTS ON SIR E
YOUDE'S DEATH WAS **A BOMBSHELL''; AND THERE HAS BEEN AMPLE DEMONSTRATION IN THE PAST TWO WEEKS THAT THE PUBLIC HELD HIM IN
DEEP AFFECTION. THERE ARE OFFSETTING POINTS TO MAKE. BALANCING THE ACUTE SENSE OF LOSS, AND THE CONCERN OF SOME THAT HONG KONG MIGHT NOW BE MORE VULNERABLE THAN BEFORE TO CHINESE PRESSURE, THERE IS LOCAL PRIDE IN THE SOLEMN GRANDEUR OF THE FUNERAL AND PRAISE FOR AND PRIDE IN THE ADMINISTRATION.
3. HONG KONG IS OF COURSE HIGHLY ADAPTABLE (AND THERE IS FORTUNATELY NO CURRENT ACUTE POINT OF FRICTION WITH CHINA). MATTERS HAVE INDEED ALREADY RETURNED TO NORMAL. THE STOCK MARKET IS HOLDING UP. THE CURRENCY IS STABLE. CHRISTMAS SHOPPERS ARE OUT IN FORCE. NCNA HAVE BEEN SAYING AND DOING THE RIGHT THINGS (TA KUNG PAO, IN A GOOD OBITURARY, DESCRIBED SIR E YOUDE AS A MAN OF CONVICTION AND DEPTH'' AND QIAO ZONGHUAI HAS MADE IT PUBLICLY CLEAR THAT THE APPOINTMENT OF THE NEXT GOVERNOR IS FOR HMG ALONE.)
4. NON COMMUNIST PRESS COMMENT IS A MORE MIXED AFFAIR. MOST PAPERS WROTE WITH REAL WARMTH ABOUT SIR E YOUDE'S ACHIEVEMENTS AND
THERE HAS BEEN A WARM WELCOME FOR THE CONCEPT OF A MEMORIAL FUND. BUT THE FAR EASTERN ECONOMIC REVIEW TOOK A PREDICTABLY SOUR
LINE ON SIR E YOUDE'S RECORD AND HONG KONG'S LATEST PROSPECTS:
AND OTHER ENGLISH LANGUAGE COMMENTATORS HAVE MANAGED TO SUGGEST
THAT HMG HAVE MISREAD CHINA AND ARE LIKELY TO GET IT WRONG ON THE NEXT GOVERNOR. THE PRESS AS A WHOLE HAVE HAD A FIELD DAY WITH FORTHCOMING APPOINTMENTS.
5. ON THE GROUND, THE BEST NEWS IS ECONOMIC. HERE PROSPECTS REMAIN HIGHLY ENCOURAGING (BAR PERHAPS SOME SIGNS OF INFLATION). INVESTMENT IN PLANT AND MACHINERY RECOVERED IN 1986. TEXTILE PLANTS IN PARTICULAR ARE RE-EQUIPPING. OUTSIDE ANALYSTS EXPECT AS MUCH
AS 3 PERCENT GROWTH (REAL) IN GDP FOR 1986. WE ARE PRETTY SURE
OF 7 PERCENT. A NOTABLE FEATURE HAS BEEN THE SHARP REVIVAL, AGAINST PREDICTIONS, OF DOMESTIC EXPORTS TO CHINA. TRADE PERFORMANCE IN EUROPE HAS ALSO BEEN MOST ENCOURAGING.
B.
"