TNAG-0445-FCO40-510-Discussions-with-Sir-Murray-MacLehose--Governor-of-Hong-Kong-1974 — Page 94

GOVERNMENT HOUSE

香港總督府

RECEIVED IN

DEGISTRY No. 51

CONFIDENTIAL

-S JUN 1974

HONG KONG

1.

28th May 1974

NICKIS/2

Sir,

This despatch describes the social and

economic situation confronting the government this summer. It is characterised by very sharp rises in the cost of living in recent months with which wages have not kept pace; by uncertainty about export possibilities in Hong Kong's major markets which are all affected to a greater or lesser extent by inflation and the cost of oil;

and finally by tight liquidity, itself a reflection of a world-wide situation but which locally is still aggravated by the after-effects of the stock market rise and subsequent fall in the autumn and spring of 1972/73. This despatch is concerned with the first of these characteristics but the other two must not be lost sight of because they affect the first.

2.

real Over the ten years up to the end of March '74 Wages have increased by 41% and the change In the fandard of 11vlug of the popurinton had boon utriking. But this figure includes a drop of 11% in real wages in the last year. In the last two years two developments broke this overall pattem of progress:-

a) From the autumn of 1972 the Chinese Government

changed its pricing policy and began to charge world prices for the commodities, including in particular food, which it sold to Hong Kong. The impact on the cost of living of this perfectly legitimate change was aggravated by its co-inciding with a high point in world prices for all commodities but in particular foodgrains and meat. It was further aggravated by local climatic conditions in the summer of 1973.

3

b) By October 1973 the rise in the cost of

living had halted and with good export prospects there was every hope of wages catching up with the cost of living and the

THE RIGHT HONOURABLE

JAMES CALLAGHAN, M.P.

CONFIDENTIAL