8.
CONFIDENTIAL
to Japan in Asia, and she is finding competition from
Taiwan and Korea, where wages are lower, increasingly
severe in those labour intensive products in which she
has had such an advantage in the past.
With her very young and growing population and her
heavy dependence on international trade, Hong Kong must
continue to increase her exports rapidly though perhaps
not quite so rapidly as the recent 25-30 per cent per
annum if she is to maintain her standard of living
and avoid heavy unemployment. The expansion of
invisible earnings could not compensate for a failure
of Hong Kong's export trade to continue growing.
Since
h
Schools
Pren.
さ
The weal Itag Kong communito
9.
appear to the wider intruction is fun Penning to keep within the
law.
II
Political Factors
Hong Kong is the West Berlin of the East.
Hay kuy
It is of
strategic value not only to the United Kingdom but also
to the United States and our allies as an observation
post for Communist China. The population is 98 per cent
Chinese and there is a strong Communist element which-
in
largely dominates the trade unions. There was a dangerous
canned by Canninir afiration
period of social unrest and rioting in 1967 but this has
been followed by a period of relative calm, An economic
crisis resulting in heavy unemployment or a fall in the
standard of living could lead to further social unrest
toime extent,
local communits which could be exploited by the Peking Government if
In but
ampton Willently they wished, though Sofer China a considers
as
Linneur foun
the continuance of the colony as in her interest, she Since Chine denies (msiderable learnia and strategic might well wish to reduce it to the degree at dependence
advantage from Hong Kong.
she has succeeded in imposing oh Macao.
Though our foroes
could not defend Hong Kong against an all-out Chinese
fattack,
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