CONFIDENTIAL
8.
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In the economy, austerity measures introduced in late 1988 and
intensified in 1989 have been successful in cooling down the
economy, reducing inflation and correcting the balance of trade
deficit. But this has been at a price. The squeeze may have been too tight industrial production is stagnant and unemployment is rising. There has recently been some relaxation of the credit
squeeze but help has gone more to the inefficient state industries
rather than to the more dynamic collective and private sector.
Chinese Government have continued to profess their adherence to
economic reform policies: but further moves towards genuine market
orientated reform seem at best on hold.
The
HONG KONG
C
International Support
9. We accept that the Japanese are unable to assist in granting citizenship or residency permits to key Hong Kong people to give them the confidence to remain in the territory (they doubt whether our own scheme will have the desired effect). However, equally important is the maintenance of confidence through continued investment and business opportunities in the territory. The
Japanese have made clear to the Chinese that it is vital that in the
lead up to 1997 Hong Kong maintains business confidence and
continues to attract investment.
10. The Japanese have said that they will take every opportunity with the Chinese to make these points and that it is also in China's interest to keep Hong Kong stable and prosporous. The Japanese have hinted that they might help to influence the Chinese over PADS.
Japanese Investment in Hong Kong
11.
Japan is Hong Kong's third largest trading partner after China
and the US accounting for 17% of total imports and 6% of total
exports (including re-exports) in 1989. Japan has also overtaken
the US as Hong Kong's largest source of foreign investment.
12.
The Japanese continue to be cooperative over rebuilding
confidence. Nakayama visited Hong Kong in November 1989. The