CONFIDENTIAL
006722
MDHIAN 8377
HURRIED MEASURES TO REINTRODUCE PRICE CONTROLS FOR BASIC COMMODITIES AND TO BOOST SUPPLIES TO THE URBAN AREAS HAD AN OMINOUS RING. THUS, THE PRC ECONOMY STARTS 1994 LESS WELL-PLACED THAN HONG KONG MIGHT HAVE HOPED. THE CHANCES HAVE INCREASED THAT DESPITE DENG XIAOPING'S PERSONAL SUPPORT, ADVOCATES OF UNINTERRUPTED ECONOMIC EXPANSION WILL HAVE TO MAKE WAY FOR A RATHER MORE PAINFUL AUSTERITY PROGRAMME THAN WAS ADOPTED IN 1993.
THE FOREIGN BULLS.
13.
THE COMPLEXITIES OF THE PRC GROWTH PROCESS HAVE BEEN IGNORED BY INTERNATIONAL INVESTORS WHO HAVE MOVED INTO LOCAL SHARES IN A DRAMATIC WAY SINCE OCTOBER 1993. FOR 1993 AS A WHOLE, THE HANG SENG INDEX HAS RISEN BY 110 PERCENT, WITH NEARLY HALF OF THE RISE OCCURRING IN THE FINAL QUARTER OF THE YEAR.
14.
THE DRIVING FORCE HAS BEEN OVERSEAS DEMAND, FUELLED VERY LARGELY BY POSITIVE PERCEPTIONS OF HONG KONG'S CRUCIAL CAND EXPANDING) ROLE IN THE PRC'S RAPID ECONOMIC GROWTH. QUITE RIGHTLY, FOREIGN INVESTORS ARE CONFIDENT THAT, IN 1994, PRC REAL GROWTH SHOULD COMFORTABLY REACH THE OFFICIAL FORECAST OF 10 PERCENT, DESPITE CPG EFFORTS TO CONTROL OVERHEATING. THEY ARE ALSO CORRECTLY CONVINCED (PARTICULARLY BY 1993'S EXPERIENCE) OF HONG KONG'S ABILITY TO PROFIT HANDSOMELY FROM PRC BUSINESS OPPORTUNITIES. THE CPG DECISION AT THE END OF DECEMBER TO LIBERALISE STILL FURTHER ITS FOREIGN EXCHANGE SYSTEM ONLY SERVED TO CONFIRM THE VALIDITY OF INVESTORS' DECISION TO INCREASE THEIR HOLDINGS OF HONG KONG SHARES IN ORDER TO TAKE ADVANTAGE OF PRC DEVELOPMENTS.
15. THESE INVESTORS WILL NOT BE UPSET BY CPG DENUNCIATIONS OF
HKG'S CONSTITUTIONAL REFORMS. NOR WILL THEY BE WORRIED BY THE CPG'S CONTINUED OBSTRUCTION OF THE NEW AIRPORT AND ITS VETO ON CT9. THE INTERNATIONAL INVESTOR IS FOCUSED INSTEAD ON HONG KONG'S FUTURE EARNINGS FROM ITS CONTRIBUTION TO THE PRC'S MODERNISATION. (NEVERTHELESS, AS THE MINISTER KNOWS, MARKETS NEVER RISE INDEFINITELY AND 'CORRECTIONS' ARE INEVITABLE).
16.
OVERSEAS INVESTORS ALSO SHRUGGED OFF POTENTIAL THREATS TO CONFIDENCE WHEN CPG OFFICIALS TRIED TO SUGGEST THAT UK FIRMS COULD SUFFER IF HKG WENT AHEAD WITH ITS CONSTITUTIONAL PROPOSALS. MARKET SENTIMENT REMAINED UNCONVINCED OF SERIOUS CPG INTENTION TO LINK POLITICS AND BUSINESS. CPG OFFICIALS' REFERENCES TO GERMAN SUCCESS IN WINNING PRC ORDERS AT THE UK'S EXPENSE (E.G., THE CANTON UNDERGROUND) WERE DISCOUNTED BY A WIDESPREAD AWARENESS OF THE
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