XN000022-1984-12-11 — Page 3

2

TUESDAY, DECEMBER 11, 1984

INVESTMENT IN PLANT AND MACHINERY HAD ALSO PICKED UP SINCE THE BEGINNING OF THE YEAR.

+TO A CERTAIN EXTENT THIS REFLECTS A LAGGED RESPONSE TO THE EXPORT RECOVERY. BUT IT ALSO REFLECTS GREATER INVESTMENT CONFIDENCE,+ THE GOVERNOR SAID.

SPEAKING OF INFLATION, SIR EDWARD SAID THAT HONG KONG'S INFLATION RATE HAD BEEN FALLING STEADILY, FROM A YEAR-ON-YEAR RATE OF JUST UNDER 11 PER CENT FOR THE FIRST THREE MONTHS OF THIS YEAR TO UNDER SEVEN PER CENT FOR THE THREE MONTHS ENDING IN OCTOBER. IT MIGHT WELL FALL FURTHER BY THE END OF THIS YEAR. THE CONTINUING STABILITY OF THE HONG KONG DOLLAR, TERMS OF ITS LINK WITH THE U.S. DOLLAR, REMAINED A FAVOURABLE FACTOR.

IN

REFLECTING THE EXPORT-LED RECOVERY, THERE HAD BEEN A SHIFT IN THE SOURCES OF GROWTH IN OUTPUT AND IN EMPLOYMENT FROM REAL ESTATE DEVELOPMENT BACK TO MANUFACTURING IN THE LAST COUPLE OF YEARS.

HONG KONG'S ROLE AS AN ENTREPOT FOR CHINA, WHICH HAD RE-EMERGED IN THE LATE 1970'S HAD ALSO STRENGTHENED, HE SAID.

SPEAKING OF HONG KONG AS AN INTERNATIONAL FINANCIAL CENTRE, SIR EDWARD SAID THAT 17 JAPANESE BANKS WERE LICENSED IN HONG KONG, AND ALL THE MAJOR JAPANESE SECURITIES HOUSES ALSO HAD A PRESENCE HERE.

THE GOVERNMENT, HE SAID, HAD NO POLICIES DIRECTED SPECIFICALLY AT NURTURING THE FINANCIAL SECTOR, BUT NONE TO RESTRICT IT EITHER.

HE SAID THAT ABOUT 14 MONTHS AGO HONG KONG REVISED THE FRAMEWORK OF MONETARY POLICY - SPECIFICALLY THE NOTE-ISSUE ARRANGEMENTS WITH A VIEW TO GIVING PRIORITY TO A STABLE EXCHANGE RATE. THE NEW ARRANGEMENTS HAD ACHIEVED THAT OBJECTIVE.

WHILE AVOIDING REGULATION UNLESS THERE WAS A STRONG CASE FOR IT, HONG KONG WAS VERY CONCERNED TO MAINTAIN A SYSTEM OF SUPERVISION AND REGULATION OF FINANCIAL INSTITUTIONS AND MARKETS WHICH WOULD INSPIRE INTERNATIONAL CONFIDENCE, AND WHICH WOULD GIVE A MEASURE OF PROTECTION TO DEPOSITORS AND INVESTORS.

SIR EDWARD SAID THAT MANY FACTORS HAD CONTRIBUTED TO THE RESILIENCE AND ADAPTABILITY OF THE HONG KONG ECONOMY, AND HENCE ITS ABILITY TO REBOUND SUCCESSFULLY FROM THE SET-BACKS WHICH AFFECT ALL ECONOMIES FROM TIME TO TIME. THESE INCLUDED BUSINESS ENTERPRISE, THE WORKERS AND THEIR SKILLS, GEOGRAPHICAL ADVANTAGES, GOVERNMENT COMMITMENT TO A FREE MARKET ECONOMY AND VIGOROUS INVESTMENT, THE LEGAL AND JUDICIAL SYSTEMS, THE ABSENCE OF EXCHANGE CONTROLS AND THE PRUDENT MANAGEMENT OF PUBLIC FINANCES.

/+THE NEW