XN000022-1981-11-17 — Page 16

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greatly value the investment that agencies of the Chinese Goverment have made in Hong Kong in recent years; similarly the more Hong Kong businessmen can share with Chinese authorities their experience of manufacturing, managing and marketing the healthier will be Hong Kong's role in China's modemisation programme.

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Of course this role depends primarily on Hong Kong's own prosperity and so on our ability to advance our om industry, and technology, and to sell in foreign markets as well as to absorb and pay

for China products. Our economy like most others in the world has been

going through an anxious period.

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Inflation is undesirably high, particularly of consumer prices and this, together with high rents in the private sector ià what hits most people, though wages have generally speaking kept pace. But whereas in many other economies inflation has been accompanied by stagnation, in Hong Kong it has not. On the contrary, the economy has continued to grow rapidly in real terms and, despite the very large increase in the population of working age due to immigration, unemployment rose only moderately and almost certainly is now falling.

The growth rate of domestic exports has fallen but is still remarkably high given trading conditions in our major markets, and

present indications are that it is rising again. The competitiveness of our exports has improved and left our exporters well poised to take

advantage of any upturn in overseas demand. I realise this is due not

only to depreciation of the Hong Kong dollar (recently reversed/ but

also to basically undesirable things like the low rate of increase in

real manufacturing wages, and a squeeze on profits. But these will be

corrected on the up-swing as and when it comes. They also reflect the realism with which management and labour alike respond to the pressures

of external economic forces.

Excessive expansion of domestic credit in recent years, has helped to fuel inflation and to finance a high growth rate of imports,

especially of consumer goods, and this was not a sustainable situation.

However, with high interest rates and a cooler property market, the

growth rate of the money supply and of domestic credit are now dropping, and

this should tend to reduce both inflation and the size of the trade

deficit.

To sum