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 perhapa
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.
9.
II
Political Factors
Hong Kong is the West Berlin of the East. 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
largely dominates the trade unions. There was a dangerous
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
which could be exploited by the Peking Government if
they wished. Although so far China seems to consider
the continuance of the colony as in her interest, she
might well wish to reduce it to the degree of dependence
she has succeeded in imposing on Macao. Though our forces
could not defend llong Kong against an all-out Chinese
/attack,
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