CONFIDENTIAL
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area of preoccupation for him is the effect of developments in China on the local economy. China's inflation is already being reflected in Hong Kong prices and if the Chinese authorities are forced to tighten further to stabilise their own economy this will impact on activity in the Colony. The Stock Exchange had held up well, so far, over the period of student unrest but confidence remains vulnerable to any unfavourable turn in the political situation in the mainland.
6 The labour shortage, which is one of the major elements in the current pressure on costs and prices is reflected in constraints in all sectors. HSBC, as one example, finding themselves with 600 unfilled vacancies, have recently increased their salaries by a basic 15% with an additional bonus element, a move which has not been welcomed by their competitors. The government see limited possibilities for action to ease the situation. Whereas in Singapore the government are deliberately restricting the importation of foreign labour in an attempt to shake out low technology and labour-intensive industry and reduce the economy's dependence on foreign workers, in Hong Kong the government would welcome additions to the labour force, particularly in the construction industry, but are constrained by political and social sensitivities from taking the obvious routes, for example, of letting in workers from across the border, or indeed Vietnamese boat people. They have looked at the possibility of bringing in foreign labour for specific projects but so far have seen this as too difficult and the only action taken has been a marginal easing of the criteria for admitting "skilled workers" from overseas.
7 Construction is one of the areas hardest hit by the labour shortage, and, partly as a result of labour constraints, I M Pei's new building for the Bank of China which was due to have been completed in April is not now expected to be finished until the Autumn. The building, which rises from the heart of Central like a blue and white arrow, dwarfing its surroundings, including HSBC (which, incidentally, will also be overlooked, in 1990, by the new Standard Chartered building) makes a striking symbolic point.