TNAG-0542-FCO40-637-Strength-of-garrison-in-Hong-Kong-1975 — Page 69

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SECURITY CLASSIFICATION

Top Secret.

Secret,

Confidential.

Restricted. Unclassified.

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In Confidence HONG KONG ECONOMY

Introduction and Summary

Type 1 +

FROM

Telephone No. Ext.

Department

In re-negotiating the Defence Costs Agreement, it is

important that Hong Kong's conventional image of unremitting

prosperity be set against the background of the events of the last 3-4 years. During the 1960's, Ilong Kong achieved a very

high rate of economic growth and made substantial inroads into

the daunting problems thrown up by the rapidly increasing,

largely refugee, population. And this was achieved without amassing a large public debt (internal or external); indeed, by 1971, Hong Kong's reserves (official and private) were sub-

stantial, even though the tax rates were low. But since 1971,

Hong Kong has suffered a series of set-backs: the flotation

of sterling to which the Hong Kong dollar had been linked; the

stock market crisis; the international commodities boom and the

failure of world grain harvests; and now the recession. As a

result, Hong Kong no longer has full-employment; its growth

rate is zero; the balance of payments is basically unstable;

the reserves are almost exhausted; the budget is in deficit and

expenditure commitments are high; the community's patience is

stretched to the limit; and the economic outlook is uncertain.

Given Hong Kong's heavy dependence on external trade and the

confidence of overseas investors, the government sees very real difficulties in covering continuing revenue short falls

by raising

taxation or by borrowing. In consequence, while recognising the importance of making further stridon in the fields of housing and social services, it is becoming increasingly concerned with containing public expenditure.

External Dependence

Hong Kong has virtually no natural resources and is

heavily dependent, therefore, on trade with the rest of the

world.

The extent of this dependence can be gauged from the fact that its external visible trade (imports and exports) is

/alone

CONFIDENTIAL