TNAG-0445-FCO40-510-Discussions-with-Sir-Murray-MacLehose--Governor-of-Hong-Kong-1974 — Page 20

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2.5

Sir M MacLehose emphasised that he had not yet

discussed his proposals in Hong Kong. Also, he was not sure how quickly the proposals could be implement-

ed. He had therefore proposed new two-year ExCo and LegCo appointments on the existing basis to fill

vacancies from the end of June. These would not

prejudice the scope for manoeuvre.

2.6

Lord Goronwy-Roberts agreed that the

Governor should proceed with the appointments which he had already proposed.

3.

3.1

Social Questions

Sir M MacLehose had described Hong Kong's current social and economic situation in his despatch dated 28 May. It was unfortunate that, just as the

financing requirements of the Government's new social

be felt programmes were beginning to bite, the budget should

be adversely affected by external constraints. The

oil crisis, with its effect on overseas markets and on

the cost of raw materials, had squeezed profit margins; and a simultaneous tightening of liquidity had caused

particular difficulty to small firms. Workers lacked

bargaining power, and real wages had dropped by about

11% in the past year. Hong Kong had no unemployment

statistics, and there were also no figures for non- industrial employment (which accounted for more than half the total work-force). However, a special new

working group was monitoring monthly economic and social trends, using sampling techniques, and was beginning to produce results.

3.2

The economy was still functioning fairly satisfactorily in macro terms; and, although belts had

had to be tightened, the human picture was not one of

real want. The Communists were unable to make trouble,

because much of the rise in the cost of living was due

to price increases of basic foodstuffs imposed by the

Chinese Government. The rises seemed now to have

levelled out; a Consumer Council had been set up to

investigate allegations of profiteering; and there was

the prospect of an improvement in real wages during

the second half of the year. The Government would be

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/announcing