TNAG-0308-FCO40-344-Contributions-of-Hong-Kong-for-costs-of-maintaining-military-1971 — Page 177

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compared with the 31% represented by the current contribution in its first year of operation (1967-68). A similar comparison in terms of proportion of the Colony's total recurrent revenue is 4.7% and 4.6%. In essence therefore the offer restores the 1967 position.

9. Officials have considered carefully whether this is acceptable or whether Hong Kong should be pressed to pay more. They have examined both the economic case for suggesting a higher contribution and the political implications of so doing.

Consideration of the offer: (1) Economic Factors

10. The Colony's economy has made very rapid strides in recent years, its Gross National Product has increased greatly and its revenue is buoyant. Nevertheless Hong Kong needs to keep on increasing its exports by about 15% per annum if industry is to expand sufficiently to provide opportunities for its school leavers in the labour market, and so avert the risk of further disturbances (it is estimated that 50% of the total population of the Colony is under 21 years of age). Such expansion depends on a continuation of the present high level of outside invest-

locally ment in the Colony and the opinion is strongly held/that this in turn

inhibits any increase of taxation to meet increased defence costs. Though in recent years Hong Kong has achieved budget surpluses (to a large extent because the Government's ability to spend has not kept

pace with the upsurge of economic activity since the end of the distur- bances in 1967), the Colony has very large commitments towards such

future projects as a public assistance scheme, expansion of secondary and technical education, housing for squatters and others, the extension of Kai Tak airport, de-salinisation plants and reservoirs to help meet its growing needs for water; and possibly a mass-transportation (under- ground i railway) system.

11. Thus in considering what is a fair contribution to its own defence, account needs to be taken of the possible dangers to the continued

expansion of Hong Kong's industry during the seventies and consequently to its revenue and reserves. In particular Britain's entry into the European Economic Community may well have deleterious effects upon Hong Kong's economy. Nor can we yet be sure that we shall succeed in obtaining for Hong Kong what we believe to be her rights in connection

with the UNCTAD generalised preferences scheme. This, together with

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