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TITLE: EFFECT
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RELATION I
BETWEEN
UNITED KINGORM
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CHINA
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REFER TO
REFER TO
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DATE
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201
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YEAR STAMP
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Mr.
CONFIDENTIAL
Reference.....
FEH 2/1
17
As we agreed sometime ago, I floated with Mr. Holmes, the Acting
Colonial Secretary, and Sir J. Cowperthwaite, the Financial Secretary,
the idea that it would be helpful to us in the FCO to have an
authoritative statement of the value of Hong Kong to the United Kingdom.
I put it to them that it would be helpful to us to have this in our
discussions with other departments the Board of Trade and Mintech in
particular. However, Sir J. Cowperthwaite took his usual line, viz: that
it would be very difficult, if not impossible, to produce any
satisfactory figures showing, for example, Hong Kong's Balance of
Payments. But he did mention that he thought that over the last two
years Hong Kong had contributed something like £120 million towards the
UK's Balance, His latest view is that the leakage of sterling through
Hong Kong might, in fact, be larger than he had previously thought.
2. In the circumstances I did not pursue the matter. We might have a
word about this, but if we here are to try to do anything I am sure we
shall have to be extremely careful to avoid wind of what we are up to
getting back to Hong Kong.
16 September, 1970
10/
B. o. Laird) Hong Kong Department
MANZ
CONFIDENTIAL
.
.
+
fee (17)
CONFIDENTIAL
Reference...
Vr,
7
Mr. Stevenson's Nr. Morion SM 21.7 Mchaid
Hong Kon
I have prepared draft letters to send to the Bank of England and Board
of Trade asking for contributions to the paper on the real value of Hong
Kong to the United Kingdom. These drafts have been cleared at desk level
with Mr. Tarlton (Economists Department) and Mr. Gaminara (Hong Kong
Department). If you agree I will send them
off.
2. There is one point to which I think I should perhaps draw attention
at this stage. Te and Hong Kong Department are already conscious of the
uneasy state of relations between Whitehall and the Hong Kong
Government. These difficulties have been compounded recently by the
compli- cated issue of what will happen to Hong Kong if the United
Kingdom decides to enter the Common Market. There is a risk therefore
that if the Hong Kong Government get wind of this paper (which they
probably will at some stage) without our having told them its purpose,
they will react with alarm and suspicion. More precisely, they may gain
the impression that the present paper is intended to show how much (or
how little) the UK Government would lose in real terms if they decided
to sacrifice Hong Kong to secure better all-round terms for the United
Kingdom on entry to the REC. Of course, this is neither the inten- tion
of the parer nor of British policy in general but the Hong Kong
Government may not be entirely reassured.
-
3. This is not to say that the paper should not be written. The purpose
of this minute is simply to draw attention to the possibility of a row
with the Hong Kong Government if we do not take them into our confidence
about the paper at a fairly early stage.
early stage. I suggest that once contributions have been collected from
the Bank of England Board of Trade and Ministry of Defence (to whom
Defence Department are writing) we should send a copy of the first draft
to Hong Kong for comments together with a covering letter to reassure
them about the scope and intentions of the paper. If Mr. Maddocks comes
into the office again before he returns to Hong Kong we might brief him
about the paper, especially since it was com- missioned originally as a
result of his letter to Mr. Morgan about the dangers of bartering away
our real interests in Hong Kong.
InAppleyard.
(L. V. Appleyard) 20 July, 1970
CONFIDENTIAL
NOTHING TO BE WRITTEN IN THIS MARGIN
TALE GONE PRODG'I 16651AC 'PO (180911)
Registry No.
YURITY CLASSIFICATION
Top Secret.
Secret,
Confidential.
Restricted. Unclassified
PRIVACY MARKING
¢༤
In Confidence
А.М.Т.Ру
DRAFT Letter
To:-
R. E. Clarke, Esq., CA 2 Division, Board of Trade, Shell Mex House.
HONG KON
Type 1 +
From
L. V. Appleyard
Telephone No. & Ext.
Department
It has become clear from discussions within the
Foreign and Commonwealth Office that we should prepare
an assessment of the economic at GÁZTATÁe value of
Hong Kong to this country, so that we are clear in our
own minds exactly what is our material stake in the
Colony. This will be of great value to us in the
context of Sino-British relations. We realise that the
relationship between the Colony and the United Kingdom
is complex, and that many of the factors are difficult
to quantify in precise terms. Nevertheless, even a
general estimate would be useful, and we are requesting
contributions from various Departments including the
Ministry of Defence and Bank of England.
2. In your case, we should be grateful for your best
estimate of the value to the United Kingdom of Hong
Kong's position as a major international airport, in
terms of a bargaining counter in negotiations about
air services between the UK and other countries,
air with an assessment of the value of UK
earnings derived from Hon. Kone's use as an airport;
and the amount of foreign exchange which we save by
having the Far East facilities provided by Hong Kong.
It may well be of course that in some respects the
position of Hong Kong brings disadvantages from the
UK viewpoint. If this is the case, this should be /pointed
pointed out. We realise too that to a large extent
Hong Kong operates as a separate entity in the airline
field.
3.
I should perhaps emphasise that this exercise is
not the prelude to a change in our policy towards Hong Kong. It is
simply an attempt to strike a realistic
balance sheet for assessment purposes between the material benefits and
disadvantages which the United
When we have Kingdom derives from the Colony.
collected all the contributions we shall re-circulate
the paper as a whole for further comment.
4. We donor purpose to refer this paper to the Hay King Govemment at
this stage, to that we shared be grateful if no mention could be made
of the study
IA
any
HangKay Givemment.
communication with the
NOTHING TO BE WRITTEN IN THIS MARGIN
C
(118340) DM. 391399 1,500 2/0 Av.
NOTHING TO BE WRITTEN IN THIS MARGIN
Registry No.
JURITY CLASSIFICATION
Top Secret.
Secret.
Confidential.
Restricted, Unclassified,
PRIVACY MARKING
..........In Confidence
DRAFT Letter
To:-
W. J. Hawkins, Esq., Economic Intelligence
Department,
Bank of England,
Type 1 +
From
L. V. Appleyard
Telephone No. & Ext,
Department
HONG KONG
It has become clear from discussions within the
Foreign and Commonwealth Office that we should prepare
an assessment of the economic angretapie value of
Hong Kong to this country, so that we are clear in our
own minds exactly what is our material stake in the
Colony. This will be of great value in the context of
Sino-British relations. We realise that the relation-
ship between the Colony and the United Kingdom is
complex, and that many of the factors are difficult to
quentify in precise terms. Nevertheless, even a
general estimate would be useful, and we are requesting
contributions from various Departments including the
Ministry
Pende and we Board of Trade.
2. In your case, we should be grateful for a
contribution on
(a) the present balance of payments position
between Hong Kong and the UK, and likely
future trends;
(b). the value of invisible earnings accruing
(c)
to the UK from Hong Kong;
the size of the Hong Kong sterling balances
in the UK and their value to the UK
economy;
(a) the place of Hong Kong in the Sterling (8)
/Area
(e)
Area structure;
the importance of Hong Kong in the gold
trade;
(f) any other aspects of the UK/Hong Kong
economic and financial relationship which
you consider relevant.
3. In some instances of course it may well be that
Hong Kong derives more from the relationship than we
do, and that we are inhibited from economic action
beneficial to the UK for fear of damaging Hong Kong's
position.
If this is the case, this should be pointed
out. I should emphasise that this exercise is not the
prelude to a change in our policy towards Hong Kong.
It is simply an attempt to strike a realistic balance
sheet for assessment purposes between the material
benefits and disadvantages which the United Kingdom
derives from the Colony. When we have collected all the
contributions we shall re-circulate the paper as a
whole for further comment.
4 We donor propose to refer the paper to the
прое
Haykay Gavomment at this stage, to that Надкая
we shared be grateful if no mentean cared be
made of
The study in any communication with
The Hangsang Gavemment.
NOTHING TO BE WRITTEN IN THIS MARGIN
(1291) D4. 391999
1,500M 249 Rw.
NOTHING TO BE WRITTEN IN THIS MARGIN
Registry No.
JURITY CLASSIFICATION
Top Secret.
Secret.
Confidential. Restricted.
Unclassified.
PRIVACY MARKING
DRAFT Letter
To:-
K. Price, Esq., Board of Trade, 1 Victoria Street, London, S.W.1.
Type 1 +
From
L. V. Appleyard
Telephone No. & Ext.
Department
In Confidence
HONG KON
It has become clear from discussions within the
Foreign and Commonwealth Office that we should prepare
an assessment of the economic and atmaterie value of
Hong Kong to this country, so that we are clear in our
own minds exactly what is our material stake in the
Colony. This will be of great value in the context of
Sino-British relations. We realise that the relation-
ship between the Colony and the United Kingdom is
complex, and that many of the factors are difficult to
quantify in precise terms. Nevertheless, even a
general estimate would be useful, and we are requesting
contributions from various Departments including the
2.
Deience and the Bank of England.
In your case we should be grateful for a
contribution on
(a) the present balance of trade between Hong
Kong and the UK and future prospects:
(b)
the extent of British investment in Hong
Kong including investment by banks;
(c) the extent of American investment in the
(a)
Colony;
the size of Hong Kong-based investment in
this country which woula pa alswthure if
thể Colony did not exiOG:
/(e)
(e) the importance of Hong Kong as a regional
centre for British trade;
(f) the usefulness of the Colony as a pressure
group for liberalising international trade
(g)
and investment;
a brief outline assessment of the advantages
and disadvantages of Hong Kong in terms of
our negotiating position for the entry b
the REC.
3. I should perhaps emphasise that this exercise is
not the prelude to a change in our policy towards Hong
Kong. It is simply an attempt to strike a realistic
balance sheet for assessment purposes between material
benefits and disadvantages which the UK derives from
Hong Kong, together with an estimate of our real
interests and investments there. When
When we have collec-
ted all the contributions we shall re-circulate the
paper as a whole for further comment.
4. We donor propose to refer the paper to the Hangkay kvemment arithis
stage, to that we samed be grateful of no mentan could be
made to the study in any communication with the Hays Cary swemment.
HaysCarya
NOTHING TO BE WRITTEN IN THIS MARGIN
CONFIDENTIAL
Reference
15
Mr. Applevard (F.E.D.)
Economic Importance of Hong Kong
Further to our recent discussion I have asked Statistics Department to
help with supplying figures relating to Britain's visible and invisible
trade with Hong Kong. In connection with your present study you may also
be interested to read the attached editorial comment "Hong Kong's
Contribution to Stability of Sterling" extracted from the Far Eastern
Economic Review of 5 March 1970.
B. Alacan
(B. A. Tarlton) Economista Department
14 July, 1970
CONFIDENTIAL
/the
Extract from the Far Eastern Egonomia Review of 5.3.70
"HONGKONG'S CONTRIBUTION TO STABILITY OF STERLING
A STRIKING feature of the Hongkong budget was the revelation of how much
the colony is doing to prop up sterling- Under the Basle Agreement which
guarantees Hongkong against losses on its hold- ings in London caused by
any devaluation of the pound, the colony is unable to diversify its
assets into other foreign currencies. But Hongkong has gone mich further
than the letter of the Basle Agreement in actually raising very
substantially its investments in Britain. The financial secretary
announced in last week's budget that £19 million
virtually the whole of the surplus on last year's budget - would be
reaitted to London, This was not a patriotic gesture on the colonial
government's part, but a hard-headed nove to take advantage of the high
interest rates prevailing in Britain.
In previous years, the practice has been to leave budget sur- pluses in
local banks where they are wailable for fuelling the expan- sion of the
Hongkong soonomy. However, as the financial secretary explained, bank
deposits in the colony are now so high that the banks are forced to keep
large liquid balances in London which reprosent the money for which they
cannot find a use locally. Under the ofroumstar the goverment would
clearly have been foolish to put any more funda into the local banking
system at this point of time.
The financial secretary also revealed the extent to which Hongkong has
expanded its sterling holdings over the last years. The increase,
representing mainly the assets of the government and the non- mercial
banks, has gone up by £103 million over this period. Hongkong is thus
probably the biggest contributor to the stability of sterling area's
foreign reserves, and the suas reaitted to Britain by the colony since
the pound's devaluation represent help on a massive scale for Britain's
exchange position. Not surprisingly, the financial scoretary felt it
proper to lash out at the British government for its moan038 towards the
colony in failing to give any formal reply to requests for help with
building an £8 million extension to the airport which is used, as the
financial seorstary said, by London to protect its OND aviation
interests against those of the colony."
Your R
Mr. Gaminara
Thank
With the Compliments of
H. A. Copeman
you
ビ
9
Treasury Chambers Great George Street London, S.W.1
Prepared in the Treasury
14
OSSIBLE ECONOMIC SPCT O V.K. OP
DISTUMANITIS IN HONG KONG
A.l fi ur s in dillio::
Political baskasound
ve my no
Thin note is written against ":: conclusion in the Special Assessment in
JIC(67)(SA)39 date! 18th May 1967, #ich concludes
that there is a potentially fan (erous situïtien in /
longer be able to rely on the Chiasse continuing t
status quo for oosno:.ic reason", but that it is th: Hong Kong
Governmont will be able to vile out tha crisia without
Political "dan ..■" are being any major change in the status quo.
L
∙ccept the
11 occible that
nade and there is a grave zink that the Cainesc Govirmont and the local
pro-commnietc will siek to force the long ng Government to
capitulate to these om inda",
U.K. tzale
V.K. ez;orts were 65 in 1960.
Prospects have been goo?,
an! in'oe: the lovol has ri on from 41 in 1960. Aports cover a wile
range, including a good deal of nao inery ni transport equip-
ment and other actal gools. To think that one proportion goes on
to other market · through Tong Kong, but that not ach nơa poes on
to China.
Thi
fnolula! 30
U.K. importa in 196 ́ were £1 c.l.f..
clothing an: 18 textiles. The textiler com un er the epool-1
arcuumta limiting imports fre. in'ivi v-1
Th: worst situ:tion for
117007.
U., bal mec of in won'g voul!
be if the China-> wore nole to prohibit all U., az or
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