TOP SECRET
85
193
22nd September, 1967
Hong Kong
Conclusion (1) of item 3 of OPDO (DR)(67)35th meeting invited the Treasury in consultation with the D.E.A., Comonwealth office and Board of Trade, to prepare a "study of the economic consequences to the UK. of no longer possessing Hong Kong".
2. I am sending you herewith a paper designed to cover this question. It has been prepared in consultation with the Board of Trade, D.E.A. and Bank of England and the Commonwealth Office have been kept in touch with the progress of the work.
3. As you will appreciate, it is in any case difficult to arrive at any precise quantifications but it is the more so because of the intrinsic difficulty of making realistic political assumptions. We have tried to meet this difficulty by making in Section I of the paper a somewhat arbitrary isolation of Hong Kong/U.X. relations from the general complex of U.X./China relations and by trying, in Section II(b) of the paper, to cover briefly the implications for the U.K. economy of various possible "political" developments with China. Ednaddy I need hardly add that the speculations in Section II of the paper are intended for strictly analytic purposes and in no way prejudge the view which the Treasury, or indeed other economic Departments, might take of any specific propositions.
4. There is one more specific point to which I should draw your attention, namely that the 810 million balance of payments saving on U.I. forces identified in paragraph 5 of the paper is not to be taken as tellin。 the whole story in terms of the implications for defence expenditure. If we no longer had commitments in Hong Kong this must have implications for other defence expenditure overseas and perhaps
We feel sure also at home) which could well be very significant.
that the final report to Ministers should include material on this point. We have not drafted on it at this stage, because some of the /mainly Departments/concerned were not members of our drafting group, but we
would hope that there will be an early opportunity to discuss it in the Working Party.
5. Finally, perhaps I should say that as I understand it, it was established at the Working Party's meeting on 11th September that while the Treasury paper would be confined to the question of what
E.M. Rose, Esq., C.M.G.,
Cabinet Office,
Whitehall,
LONDON, 8.#.1.
/the
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