TNAG-0543-FCO40-638-Strength-of-garrison-in-Hong-Kong-1975 — Page 139

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CONGANATAL

HONG KONG DEFENCE COSTS NEGOTIATIONS OCTOBER 1975

THE HONG KONG ECONOMY

BRIEF F

(The following note is a brief economic commentary on the longer background paper on the Hong Kong Economy which is attached. Paragraph numbers in brackets refer to the background paper).

1. Hong Kong's post-war development is often described as an economic success story par excellence. In the period 1945- 71 (and particularly after 1961), it achieved a remarkably high rate of growth with rapidly increasing real wages per head, managing to reach and sustain a level of full employment without balance of payment difficulties or internal inflation. Government expenditure also increased apace, making inroads into the daunting housing and other social problems without necessitating significant changes in the basic relatively low tax structure and whilst still leaving room for the amassing of substantial fiscal reserves. All this was accomplished, moreover, in the face of a United Nations embargo on the China-trade which all but destroyed the basis for Hong Kong's existence, and an almost overwhelming increase in the population (paragraphs 4- 15).

2. Hong Kong would argue that its success over these years can principally be attributed to (a) its laissez-faire policy as exemplified by its free-port status (paragraph 5), its lack of controls on the movement of funds through the foreign exchange market (paragraph 6) and its low direct tax system (paragraph 13), and (b) the plentiful supply of

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