BACKGROUND NOTE
CONFIDENTIAL
HONG KONG
1.
Hong Kong depends on economic prosperity, on good relations with China and on the relationship with the United Kingdom. With a population of more than four million it is Britain's most important dependent territory.
The Economy
2.
Hong Kong's economic expansion, based on a very rapid growth of exports, has recently been checked by the world recession and by higher import prices (particularly of oil and food). Employment levels have dropped, notably in the textile industry; and real wages, though still the highest in the Far East outside Japan, have fallen during the past two years. There are signs that economic activity may now be beginning to recover, but the outlook remains very uncertain. The Government is committed to a massive
social programme, including plans for rehousing almost half the population in ten years. But its fulfilment will depend on a substantial increase in government revenue, which has been seriously affected by the recession. The Government was forced to provide for some rephasing of projected social expenditure in the 1975/76 budget.
Hong Kong/China Relations
3.
Hong Kong/China relations are good. China earns over one-third of her foreign exchange through Hong Kong. The lease on the New Territories assigned to Britain in 1898 by the Convention of Peking expires in 1997. The Chinese regard this and other treaties imposed by the Imperial powers during the nineteenth century as unjust and do not recognise them. However, she takes a long view of her territorial claims and for the time being tolerates the status quo in the Colony. We know that Chinese cadres there have recently received orders not to encourage strikes or other forms of agitation. Whilst the moderates dominate the political scene in Peking the Chinese are likely to continue to follow this
/policy.
CONFIDENTIAL
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