TNAG-0568-FCO40-701-Planning-paper-on-Hong-Kong-1976 — Page 160

Mr O'Keeffe

(HKIOD)

SECRET

14

HONG KONG: PLANNING PAPER AND THE ECONOMY

1.

Following the PUS' meeting on 13 February, I have been developing some thoughts on the future problems of Hong Kong's economy which may be germaine to the Planning Paper you are now preparing.

2.

Coming relatively afresh to Hong Kong's economic problems and whetted by the correspondence which followed Mr Cortazzi's minute of 19 December 1975 giving a report of his visit to Hong Kong, I am rather disturbed about the economic future there.

3. On the assumption that HMG has a continuing responsibility for Hong Kong, including its economic and financial policies, serious doubts have been expressed as to firstly the adequacy of the thinking and the pace of economic and social development and secondly the internal economic management. I am, of course, prepared to enlarge upon these aspects but would mention now, as far as the question of economic management is concerned, that the absence of a central monetary authority, coupled with the apparent inability of the local administration to contain the stock market boom in 1973 or to hold the exchange rate in 1974, that seemingly inadequate assessment made of the viability of the New Towns and the Mass Transit Railway and the paucity of economic statistics in Hong Kong provide cause for some concern. Recognising Hong Kong's lack of natural resources, this leads me to a view that the economic future of Hong Kong could be perilous unless steps are taken soon to take a more definite grip of the situation. As well as HMG's contingent liability to British passport holders there, there could be economic liabilities as well, such as international debt commitments, charges on the aid programme, etc.

4.

It appears to me that the present Governor's noble efforts towards social reform are in danger of being frustrated by the Colonial "establishment", particularly the Financial Secretariat. Economic advice that is available to the Govenor at present is, I understand, to put it mildly, unduly conservative and orthodox. One proposal which might be worth considering from the economic standpoint would be to ensure that the Governor and the Foreign and Commonwealth Office had up to date economic advice available to them from an alternative source. This could take the form either of an FCO Economic Adviser, akin to POLAD, in Hong Kong, or an Economic Adviser located in HKIOD available obviously to both FCO and the Governor.

5.

Could I therefore propose that some thoughts along these lines might be included in the economic section of the re-draft of the Planning Paper on Hong Kong

Komen Sumiz

23 February 1976

cc Mr Larmour

Mr Cortazzi

Mr Foggon (OLA)

Mr Bentley (FED)

Mr Masefield (Planning)

Mr Dart (ED)

SECRET

Adrian Smith

Senior Economic Adviser