CONFIDENTIAL
5
HONG KONG BANK: ECONOMISTS IN PLANNING DEPARTMENT
Mr Vincent Cheng, Mr C K Law
1.
Wage cost pressures had not been a factor in 1985's export performance; real wages had not increased. Single equations attempting to describe trade flows had shown a more significant price effect for Western European markets than for the USA (though GNP growth had been more rapid in the US, and the exchange rate link had meant greater exchange rate effects in the European markets).
2. The export increase expected for 1986 would probably only restore the levels of 1984 (which had been a good year). There had been a significant failure of investment during the previous rise in exports. The investment surge normally lasted 2-3 years last time there had been an increase over a very short period.
3. There was concern over the lack of new investment over the last 3-4 years. The Territory had failed to diversify and use new technology.
In electronics in particular, Hong Kong still relied on the lower end of the market: watches, radios and cassette players. Advanced products (enjoying a temporary monopoly effect and high value added such as VCRS, CD players, mini HiFis and so on) could not be produced where licences were not granted and where there were no domestic component manufacturers capable of designing and producing specialised ICs. Partly because of increasing sophistication of these products, the Territory no longer appeared flexible; it relied on the existing range of products.
4. Entrepreneurs were said to be reluctant to undertake major new investments. They were concentrating on moving their own portfolios abroad and arranging foreign passports.
5.
There was a generalised pressure from business for government assistance which it was feared that the administration with a move towards fiscal surpluses again would succumb to (Akers-Jones, unlike Bremridge, was said to be too ready to interfere with business).
6.
Development of the services sector was bound up with Chinese exports, for finance, transport and marketing. An important influence on the financial sector would be the speed of opening-up of a competitive Japanese market.
PRINCIPAL ASSISTANT FINANCIAL SECRETARY: MR COLIN SANKEY
7.
Financial planning within the Hong Kong government had in the past been characterised by a lack of realism in budgeting, with one year time horizons and insufficiently well distinguished capital and recurrent elements. The Budget speech in February would include various improvements:
description of a month-by-month review of income and expenditure;
CONFIDENTIAL