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LORD GORONWY-ROBERTS'S VISIT TO HONG KONG: 11-17 JANUARY
BRIEF NO. 10: HONG KONG: THE ECONOMY
General
1.
The combined impact of steeply-rising oil prices, sharp increases in the cost of imported raw materials and food and the decline in world trade has slowed down the growth of Hong Kong's economy. Industrial output is patchy and the supply of credit is tightening. The Hang Seng index of industrial share prices has fallen to its lowest level for many years (165 against 1,700 last year). Nevertheless, an increase of about 4% in GDP for 1974 is forecast (against an average annual increase, in real terms, of about 8% in recent years). Until October exports were holding up quite well and the official reserves are still healthy.
2.
Hong Kong also faces severe budgetary difficulties.
In 1975/76,
a shortfall of revenue of about £200 million is expected. Half of this
will be covered by a review of existing programmes, about £60 million by
new taxes (about 11% of present recurrent revenue), and the rest by borrowing. This is by far the largest increase that Hong Kong has ever had to meet in a single year.
3.
The Hong Kong Government announced on 26 November its decision. to free the exchange rate of the Hong Kong dollar from its tie with the United States dollar, which was established in February 1973.
The move followed speculative pressure against the US currency, necessitating support by the Hong Kong monetary authorities under IMF rules at a cost which in the absence of "floating" would soon have become prohibitive.
Wages and Employment
4.
It is estimated that in the 12 months to April 1974 real wages declined by about 12%. They have since either remained stagnant or, in some cases, declined even further. The consequent reduction in purchasing power has led to a marked fall-off in retail sales.
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CONFIDENTIAL
5. Employment
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