EGRAPH
MAY 21, 1967
Sir A. Suylling
KGilacha
Paclanes,
27/5
15
The riots in Hongkong may prove a turning point. Hongkong has had riots in the past but never before has China stepped in and escalated the conflict into an international issue, nor have the rioters been so well organised. The new twist in China's policy has left the Hongkong authorities and business community, hardened by years of living on a razor's edge, badly shaken and in a state of suspense. Hongkong is useful to China but a govern- ment which is prepared to ruin its economy for the sake of its political creed is not going to stop at ruining Hongkong. Below DONALD LAST discusses Britain's economic stake in Hongkong and what it means to this country.
BRITAIN'S STAKE
HONGKONG
Eco
IN
'CONOMICALLY Hongkong is much more useful to China than to Britain.
Hongkong provides work for nearly 4 million people and is a useful and practical contact with the West. The colony is China's biggest foreign market, where last year it earned £173 million. On top of this there is the money expatriate Chinese send home to their families-estimated to be at least £50 million, but is probably much more. Some banking ex- perts put China's total hard cur- rency inflow through Hongkong as high as £300 million. If Mao took over the colony the loss of foreign earnings would be offset by the profits from Hongkong's industry, but these would cer- tainly wither.
From the British point of view the loss of Hongkong would have little impact on the trade balance. Hongkong produces no essential commodities like, say, Malaysia, and is entirely self-supporting except for defence expenditure
which in terms of the U.K.'s global commitments, is tiny. Britain has suffered a decreasing share of the Hongkong market over the years in 1961 U.K. exports accounted for 13 per cent of Hongkong's total imports; last year they amounted to 10 per
cent.
The visible trade between the two countries balances out. If Hongkong were taken over there would be sighs of relief in Lanca- shire and the toy industry. Hong- kong textile imports have long been a thorn in Lancashire's side. Clothing and cotton textiles are Hongkong's biggest export item accounting for more than 50 p.c. £185 million) of the total: Britain takes more than a fifth. Plastic toys, dolls and flowers are Hong- kong's second biggest export to
he U.K.
loss of Hongkong is impossible to evaluate since figures for invisible earnings and how much is sent back to this country are not avail-
able. But certainly they are far
smaller than what China earns and the loss could easily be absorbed. Though part of the Sterling Area, Hongkong is a free currency colony where there is inevitable seepage of sterling through the currency restrictions net. To that extent loss of Hong- kong would be one less headache for the Bank of England.
The latest figure for Hongkong's sterling assets is £280 million, but this gives no idea of the true resources of the British-run banks, finance and trading companies operating in Hongkong. The profits they make tend to shift elsewhere to safer havens. Before the riots, for example, funds were flowing out to America at the rate of some half a million pounds a day.
Business confidence in Hong- kong will inevitably be affected by the dispute. The closing of the Hongkong Stock Exchange is not read very seriously; busi- ness was at a low ebb before the riots "and instead of playing mah jong on the floor, dealers are now playing at home." The two major companies quoted on the London Stock Exchange which have felt the backwash are the Hongkong and Shanghai Bank- ing Corporation which has come back 7 to 81116, its year's low, and Wheelock Marden which has dropped from 12s. 712d. to 10s. 6d.
Were Hongkong to go, the Hongkong and Shanghai with a quarter of its branches in the colony, would be bound to suffer to some extent, but not griev- ously. A good deal of Far East custom would leave with the bank and be carried on elsewhere.
Wheelock Marden has studi- ously avoided investing heavily in
The likely impact on sterling of Hongkong.
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