XN000022-1985-01-22 — Page 36

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20.

Hong Kong began its own recovery quickly as it had done

before. In the second quarter of 1983 there was an encouraging rise in exports. Strong economic growth in the United States - Hong Kong's largest export market and improvements in the economies of our other

markets resulted in very rapid growth rates in domestic exports to

those markets,

21.

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But, as I hardly need to remind you, it is not only economic

factors which affect business decisions. The crisis of confidence in

the Hong Kong dollar, which came to a head in the autumn of 1983, at a

particularly delicate stage of the negotiations, was largely the result of political uncertainty. In order to restore a stable exchange rate,

the Hong Kong Government revised the framework of its monetary policy -

specifically the note-issue arrangemen ta with the aim of linking the

value of the Hong Kong dollar to that of the US dollar. With the

cooperation of our major banks, the new arrangements achieved that aim,

J

22,

Thus, we were able to conduct the crucial concluding stages

of the negotiations in 1984 against the background of rising exports,

a stable currency, and a consequent strong stimulus to growth in our economy, full employment and a steadily falling rate of inflation. In retrospect, our economic problems in the early stages of the negotiations,

although they gave us no cause for comfort at the time, were a lesson

to everyone how vitally important to the health of our economy was

confidence, on what foundations confidence was built, and how easily

it could be undermined.

23.

Even then, the key to Hong Kong's future had yet to be found. If our entrepreneurs, and our professional and technically qualified people, were to be convinced that Hong Kong could continue to offer them and their families an acceptable home, they had to be convinced that its economic system and familiar life-style would survive. Our manufacturing and export record in 1983/84 was achieved by optimum use of existing

assets. If this growth was to continue, there had to be reinvestment and new investment. For all that, there had to be political confidence; and the key to that political confidence was a satisfactory completion

of the Sino-British negotiations.

/24.