govment expenditure was also straining the government's finances. In 1974/75, the General Revenue Account produced a deficit of HK$470 million, the first since 1966/67, and this was in spite of the fact that much of the 1974/75 revenue was deri-
ved from income arising in the boom year of 1973. It is poss-
ible that these financial strains would have become clearly visible even earlier, that is in 1972/73 and 1973/74, taking into account also that 1971 was a year of relatively slow growth
of incomes. The fact that there were substantial surpluses in
both these fiscal years was to an extent on account of exception ally large windfall increases in revenue from stamp duties and land sales following unparalleled activity on the stock market and an associated sharp rise in property prices.
(e) The Stock Market Boom
104 Ex
21. In 1971 and 1972, there had been considerable overseas in interest in the stock market and this could have been partly on account of China's rapprochement with the West. The net inflows of funds on capital account through the foreign exchange market were substantial at this time, amounting to an estimated HI 3000 million in 1971 and H2000 million in the first half
(compared with ghost Hafn.000 million.
want inermull year). of 1972 During this 18-month period, the Hong Seng Index of Share Prices increased from around 210 to 440. This sharp rise attracted widespread local interest in the stock market also, and by the end of 1972 the Index had risen to ovor 840. This further rapid increase was to a large extent fuelled by a consi- derable expansion of bank credit, advances and loans for the stock market increasing in 1972 by more than those for the ordin- ary purposes of industry and trade. Soon after, in March 1973, the Index reached a peak of 1,775. But in the second half of 1972 and in the early months of 1973, profit-taking on the stock market by overseas institutions resulted in a net outflow of funds on capital account of over HK4000 million. This put the balance of payments into deficit and contributed to the Index plummoting to 450 by the end of the your.
(f) The Liquidity Squocze
22. The outflow of funds (which brought the banks' foreign exchange reserves down to around HK5000 million or a little below the 1971 level by the middle of 1973, and to only 20% of deposit liabilities) and the fact that a considerable proportion of banks' outstanding advances and loans was against shares /acquired
GONFIDENTIAL
NOTHING TO BE WRITTEN IN THIS MARGIN
No comments yet.
Private notes are available after approval.