TNAG-0056-FCO40-92-Evacuation-plan-1967 — Page 107

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21.

We night therefore be faced with a situation in which after our loss

of Hong Kong, China acquired a significant part of the balances at present held by the Colony (at present totalling about £330 million)

without offsetting financial or economic concessions to the United

Kingdom. Depending on the proportion in question this could represent

a substantial deterioration on the 1966 situation. In the first instance (and not least because of the loss of the foreign exchange receipts which she currently gets from Hong Kong) China would be much

more likely to run down her reserves to pay for imports than Hong Kong;

and in the second instance sterling balances in her hands would be much

more volatile than in the hands of the Hong Kong colony. How far a run down of sterling balances held by China (or the expectation thereof)

would be damaging to sterling generally or would create a "financing"

problem would depend on the United Kingdom balance of payments position at the time and on the general state of confidence.

Conclusion

22.

The broad conclusions are as follows

(1)

(2)

(3)

in itself the loss of Hong Kong, though it would involve some

disruption pending re-deployment of resources, should not, once the impact effects had been absorbed, cause more than marginal damage to the United Kingdom economy; but

some adverse effect on our exports to China could in any case be expected and if the loss of Hong Kong were accompanied by a cessation of trade with China this would significantly aggravate the problems of disruption and might perhaps add up to £30 million to any balance of payments loss arising from loss of Hong Kong;

in so far as it proved expedient or necessary to release any

substantial part of the Hong Kong sterling balances to China this could have damaging effects, the scale and significance of which would depend on our economic circumstances at the time.

23. Finally it has to be remembered that the above conclusions are on the

basis of comparing the 1966 position with that which might obtain

following loss of Hong Kong. In fact the economic value to the United

Kingdom of Hong Kong can be expected to diminish in the longer run i.e. as the end of the Concession (1997) approaches; and could diminish quite rapidly in circumstances of heavy and sustained Chinese pressure (in due course indeed Hong Kong could become an economic burden on the United Kingdom).

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