XN000022-1981-09-11 — Page 4

FRIDAY, SEPTEMBER 11, 1981

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MR BREMRIDGE SAID THAT REVISED ESTIMATE ON CONSOLIDATED ACCOUNT, AS SEEN AFTER FIVE MONTHS PERFORMANCE, WAS NEARLY $31 000 MILLION, AND THIS WOULD BRING THE RELATIVE SIZE OF THE PUBLIC SECTOR TO ABOUT 24 PER CENT OF GDP. ALTHOUGH A SUBSTANTIAL PART OF THE DIFFERENCE BETWEEN THE ORIGINAL ESTIMATE OF $28 300 MILLION AND THE REVISED ESTIMATE WAS DUE TO PRICE INCREASES NOT ALLOWED FOR IN THE ORIGINAL ESTIMATES. THIS DID MEAN THAT THE PACE AT WHICH THE PUBLIC SECTOR IS INCREASING ITS SHARE OF DEMAND ON THE RESOURCES OF THE ECONOMY IS FASTER THAN EXPECTED.

+THE RATE OF GROWTH OF PUBLIC SECTOR EXPENDITURE NEEDS TO BE MONITORED STRICTLY IF WE ARE NOT TO RUN THE RISK OF FALLING OUT OF STEP TO AN UNACCEPTABLE EXTENT WITH THE GROWTH OF THE ECONOMY, HE SAID.

MR BREMRIDGE THEN STATED THAT CRITICISMS OF PUBLIC EXPENDITURE SHOULD BE COUPLED WITH MENTION OF SPECIFIC SECTORS OF EXPENDITURE WHICH SHOULD BE CUT.

+GENERAL ISATIONS WILL NOT DO. HONG KONG CONSISTS OF PEOPLE, NOT STATISTICAL FIGURES, AND GOVERNMENT CANNOT IGNORE POLITICAL FACTORS. I TRY TO REMIND MYSELF EVERY DAY THAT WHAT MAKES SENSE TO ME MAY WELL NOT DO SO TO A SIGNIFICANT SECTOR OF THE POPULATION. CRITICS PLEASE BEAR IN MIND, HE SAID.

DISCUSSING THE MONEY SUPPLY HE SAID THE RAPID INCREASE IN CREDIT CREATION IN HONG KONG IN RECENT YEARS INDICATED THAT THE WILLINGNESS ON THE PART OF LENDERS WAS MATCHED BY CONFIDENCE ON THE PART OF BORROWERS.

+MOREOVER, THE SUSTAINED HIGH GROWTH RATE OF THE GDP AND THE SUSTAINED INCREASE IN PRICES, PARTICULARLY OF THOSE ITEMS MOST COMMONLY PURCHASED WITH THE HELP OF CREDIT, SUCH AS PROPERTY, HAVE SHOWN THAT THIS CONFIDENCE HAS, AT ANY RATE SO FAR, BEEN WELL FOUNDED. WHETHER IT WILL CONTINUE IS A MATTER FOR SPECULATION, AND I USE THE WORD DESIGNEDLY, HE SAID.

MR BREMRIDGE REFERRED TO DEMANDS FOR MORE CONTROL OF CREDIT CREATION AND SAID AT PRESENT THERE WAS ONLY ONE MONETARY INSTRUMENT WHICH COULD BE USED IN THE CIRCUMSTANCES OF HONG KONG TO AFFECT ECONOMIC EVENTS.

+THIS IS THE LEVEL OF INTEREST RATES, WHICH HAS BEEN PROGRESSIVELY RAISED UNTIL IT IS NOW AT AN UNPRECEDENTEDLY HIGH LEVEL.

+UNFORTUNATELY, ALTHOUGH PRESENT LENDING RATES ARE HIGH IN REAL TERMS THEY ARE NOT SO HIGH, OR AT LEAST HAVE NOT BEEN SO HIGH UNTIL RECENTLY, IN RELATION TO THE LEVEL OF CAPITAL APPRECIATION THAT HAS BEEN AVAILABLE IN FOR EXAMPLE THE PROPERTY MARKET. THIS HAS MEANT THAT ONE MAJOR USER OF CREDIT HAS NOT BEEN DETERRED BY HIGH INTEREST RATES FROM BORROWING AT A TIME WHEN OTHER CREDIT USERS, SUCH AS MANUFACTURERS AND TRADERS ARE FINDING THAT HIGH INTEREST RATES THREATEN THE VIABILITY OF THE IR BUSINESSES,

/M IS