TNAG-0042-FCO40-78-Future-Sovereignty-of-Hong-Kong-Defence-Review-Working-Party-1967 — Page 54

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(2;

Possible effects of policy action

17. How far either party might deliberately take action

damaging to existing economic relations between the U.K.

and China, would depend upon the circumstances of the

"lose" of Hong Kong. In the worst case the loss of

Hong Kong could lead to something akin to economic

warfare between the U.K, and China. We would be at

risk in respect of exports of the order of 632 million.

Our imports from China totalled £34 million in 1966.

while about 10 per cent of these imports are quota

controlled textiles, they consist mainly of foodstuffs,

raw materials and senis, which would tend to be replaced

by imports from third countries (perhaps at higher cost)

rather than by increased U.K. production. Subject to

cone re-deployment of the resources at present used for

exports to China into other uses beneficial to the

balance of payments, a cessation of our trade with China

could have an adverse effect on the balance of payments

of up to say 230 million.

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18. In certain circumstances on the other hand H.M.C.

might wish to make economic concessions to China:

main possibilities are:-

(1) an increase in quotas for imports of

manufactured goods from China (which could be

supplied by use of Hong Kong's capacity) and

(2) rolcases of sterling to Chinese control from

Hong Kong's blocked balances.

The effects on the UK. economy of such concessions

would depend on the quid pro quo. Broadly, however, in

so far as the quid pro quo were economic (e.g. increased

opportunities of a U.K. trade with China, or Chinose

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