TNAG-0212-FCO40-248-Departmental-briefs-on-Hong-Kong-1970 — Page 151

CONFIDENTIAL

October 1968 HMG undertook to maintain the sterling value in terms

the United States dollar of 90% of Hong Kong's official external

reserves provided that 99% of such reserves was maintained in

sterling. There is an additional arrangement (not paralleled in

the Agreements with other holders of sterling) whereby the sterling

assets of the Hong Kong commercial banks can be covered under the

guarantee,

12.

Even these arrangements have not entirely dissipated the resent-

ment felt in Hong Kong towards the U.K. as a result of devaluation,

and there is undoubtedly some feeling in Hong Kong that she should be

permitted to diversify further her holdings.

13. Hong Kong is the largest single holder of sterling assets.

These assets stood at £445 million at the end of 1969, comprising

official funds 256 million) and private funds (£189 million) held

for residents and banks, A further £18 million was recently

transferred to the U.K. by the Hong Kong Government.

In its

14. Hong Kong's prosperity prior to 1950 rested on the entrepot

trade, principally with China. With the advent of the Communist

Government in China and the embargo on strategic exports to China

during the Korean War, the entrepot trade dwindled rapidly.

place industry has assumed a dominant role and over three-quarters

cf the Colony's total exports are now manufactured or processed

locally. The arrival of refugees brought in additional manpower

and in some cases valuable technical skills and capital. United

States regulations prohibiting the import of Chinese manufactures

provided the stimulus to develop new Chinese-type products in Hong

Kong for the American market. In 1949 Hong Kong's total trade

(imports and exports) was £317 million; in 1969 it was £1936

million.

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CONFIDENTIAL