CONFIDENTIAL
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102151
MDHIAN 58891
ATTEMPTS TO CLAIM A VETO ON MAJOR PROJECTS AND POLICIES. IN AN OPINION POLL CONDUCTED IMMEDIATELY BEFORE THE MOU'S ANNOUNCEMENT, 75 PER CENT OF RESPONDENTS WERE OPPOSED TO ANY SUGGESTION OF A PRC VETO ON MAJOR ISSUES STRADDLING 1997.
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4. SINCE THE ANNOUNCEMENT OF THE AGREEMENT ON 4 JULY, SOME COMMUNIST-CONTROLLED NEWSPAPERS HAVE PRESENTED THE MOU AS A SECOND JOINT DECLARATION (JD), WHICH HAS STRENGTHENED CHINA'S HAND IN INFLUENCING EVENTS IN HONG KONG. THE GENERAL PUBLIC TENDS TO SHARE THIS VIEW. A POPULAR ASSESSMENT IS THAT HONG KONG HAS HAD TO SACRIFICE SOMETHING IN TERMS OF PRE AND POST-1997 AUTONOMY TO SECURE PRC SUPPORT FOR THE AIRPORT. FOR MOST PEOPLE, HOWEVER, THIS PRICE SEEMS ACCEPTABLE, PERHAPS BECAUSE THEY ALREADY HAVE A DEEP-ROOTED SCEPTICISM ABOUT CHINA'S JD PROMISES OF AUTONOMY. THERE IS HOWEVER A GOOD DEAL OF CONCERN ABOUT THE THESIS THAT THE MOU WAS CONCLUDED OVER THE HEAD OF HKG. WITH THE SUPPORT OF EXCO MEMBERS, WE HAVE HAD SOME SUCCESS IN REBUTTING THIS VIEW.
5. IN A RECENT OPINION POLL, 55 PER CENT OF RESPONDENTS SAID THAT THEY WERE NOT CONFIDENT THAT CHINA WOULD HONOUR ITS COMMITMENT TO OPERATE A ''ONE COUNTRY, TWO SYSTEMS' POLICY AFTER 1997. IN THE SAME SURVEY, 59 PER CENT SAID THAT THEY EXPECTED THE PEOPLE OF HONG KONG TO EXPERIENCE AN EROSION OF THEIR FREEDOMS AFTER 1997. SCEPTICISM ABOUT THE VALUE OF THE JD AND ANXIETY ABOUT THE FUTURE ARE MOST PREVALENT AMONGST THE YOUNGER, RICHER AND BETTER- EDUCATED SECTIONS OF THE COMMUNITY. IT IS THE EDUCATED PROFESSIONALS WHO HAVE EXPRESSED MOST CONCERN ABOUT WHAT THEY SEE AS A RETREAT FROM THE JD'S PROMISES OF CONTINUED AUTONOMY.
THE ECONOMY
6. THE ECONOMIC OUTLOOK HAS BRIGHTENED STEADILY SINCE THE FINANCIAL SECRETARY'S BUDGET SPEECH IN MARCH. THE SPEEDY AND SUCCESSFUL CONCLUSION TO THE GULF WAR AND THE RESILIENCE OF HONG KONG'S MAJOR TRADING PARTNERS (NOTABLY, THE U.S. AND PRC) HAVE HELPED TO ENHANCE BUSINESS PROSPECTS. THE MOU HAS GREATLY IMPROVED INVESTMENT SENTIMENT. ITS ANNOUNCEMENT WAS GREETED INITIALLY WITH SOMETHING APPROACHING EUPHORIA IN THE BUSINESS COMMUNITY. THESE OPTIMISTIC EXPECTATIONS ABOUT THE ECONOMIC OUTLOOK HAVE BEEN REFLECTED IN A SHARP RISE IN PROPERTY AND SHARE PRICES. THE STOCK MARKET REACHED AN ALL-TIME HIGH ON JULY 16.
7. HOWEVER, CONSIDERABLE ANXIETY PERSISTS ABOUT INFLATION. THE ANNUAL RATE REACHED 13.9 PER CENT IN APRIL BUT FELL BACK TO 13 PER CENT IN MAY. THE PROSPECTS FOR THE REST OF THE YEAR ARE FOR A
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