XN000022-1987-03-10 — Page 3

2

TUESDAY, MARCH 10, 1987

+

+ CLEARLY, EVEN IF ONE WERE SEEKING TO BUY INSURANCE, ONE WOULD DEAL ONLY WITH A COMPANY ONE TRUSTS.+

AS REGARDS THE TREND OF CAPITAL INVESTMENT IN HONG KONG, MR YEUNG SAID DURING THE NEGOTIATIONS ON THE FUTURE OF HONG KONG THERE WAS, NOT SURPRISINGLY, A WAIT-AND-SEE ATTITUDE.

+ HOWEVER, IN 1984, ON THE BACK OF RAPID GROWTH IN DOMESTIC EXPORTS IN 1983 AND 1984 PRIVATE INVESTMENT IN PLANT AND MACHINERY INCREASED BY 22 PER CENT TO AN ALL-TIME HIGH.

+WHILE INVESTMENT IN THIS AREA FELL SLIGHTLY IN 1985, TRADE STATISTICS PUBLISHED BY THE GOVERNMENT SHOW CLEARLY A VERY STRONG RECOVERY IN RETAINED IMPORTS OF ALL TYPES OF CAPITAL GOODS IN THE SECOND HALF OF 1986.

+STATISTICS OVER A LONGER PERIOD SHOW THAT, IN THE CASE OF MANUFACTURING, THERE IS A MARKED CORRELATION BETWEEN THE GROWTH RATE IN REAL TERMS OF RETAINED IMPORTS OF INDUSTRIAL MACHINERY FOR USE IN THE MANUFACTURING SECTOR AND THE GROWTH RATE OF DOMESTIC EXPORTS:

1982

1983

1984

1985

1986

GROWTH RATE (%) IN REAL TERMS

RETAINED IMPORTS OF INDUSTRIAL MACHINERY FOR USE IN MANUFACTURING

-26

19

27

-4

DOMESTIC

EXPORTS

-3

14

17

-5

16

26 (ESTIMATE)

+THUS IT IS DIFFICULT TO RECONCILE THE FACT THAT OVER A LONG PERIOD INVESTORS - PARTICULARLY THOSE IN MANUFACTURING - HAVE BEEN WILLING TO INVEST IN PLANT AND MACHINERY FOR USE IN HONG KONG WITH THE VIEW THAT CAPITAL IS BEING MOVED OUT OF HONG KONG BECAUSE OF A LACK OF CONFIDENCE IN OUR ECONOMIC FUTURE.

+AND IT WOULD SEEM REASONABLE TO INFER FROM THE EVIDENCE THAT EVEN IF SOME OF THE OUTFLOWS WERE ASSOCIATED WITH AN ELEMENT OF UNCERTAINTY THIS IS NOT PREVENTING SIGNIFICANT PRIVATELY FINANCED INVESTMENT IN LONG-TERM PHYSICAL ASSETS BEING UNDERTAKEN IN HONG KONG.

/+FINALLY,