TNAG-0568-FCO40-701-Planning-paper-on-Hong-Kong-1976 — Page 237

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Mr Jany in (HKIOD K245)

MMF 393/1

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HONG KONG: DRAFT PLANNING PAPER

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1. A very general observation: there seems to be some over playing-down of the performance of past Governors (Grantham, Black and Trench). On reading through their LeyCo Addresses one can't fail but to be awed by the sheer scale of the problems with which they were faced and by/determination to tackle issues which London seemed only too willing to ignore. I have in mind particularly the refugee question, the UN and US trade embargoes, the squatter fire in 1956, the persistent water shortage at a time when Plover Cove and High Island were not even technologically feasible, the restraints on trade in the 1960's, and so on. It is just not the case that Sir Murray's arrival represented a turning point, though his achievements have certainly been impressive by any standards, and it seems to me to serve no useful purpose to suggest otherwise. What is now needed in Hong Kong is an acceptance of the fact that whilst London recognises, and is indeed thankful that so much has been achieved in the last 30 years, it also realises, with the benefit of hindsight (as should Hong Kong, with the benefit of hindsight), that the potential exists for even bolder action in the future and that there should be no illusions that London will in fact expect more rapid reforms from now on.

2. As far as 1997 is concerned, I would say simply that it is by no means clear that confidence will diminish in the mid-1980's. It could evaporate towards the end of the 1970's if investors generally believed that everyone else felt that the time to throw in the towel was about 1985. On the other hand, it could be that confidence would be largely unaffected for the rest of this century if it were generally believed (whatever might or might not be said officially) that 1997 had as little significance for the future as, say, 1967. All that can be said for sure is that if confidence does evaporate, it will do so quickly. We need, therefore, to be very much on our toes from now on so as to guage as effectively as we can just how the mood of businessmen is changing. This would be even more important in practice than trying to sound-out Peking.

3. I do not agree, incidentally, that as Peking's foreign exchange earnings derived through Hong Kong decline in relative importance, so the liklihood of resumption will increase. In my view China will be very conscious of the costs of a takeover, and of the problem simply of absorbing a large city-state.

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For the rest, I found the paper unexceptional, though, given the short notice, I must reserve the right to come back on many points of detail at the redrafting stage. Some of the economic arguments will, I think, need to be reworked and tightened-up, if only because of typographical errors and rapid drafting, rather than conceptual misunderstandings). For example, what is the ratio of GDP/GNP in paragraph 22 meant to convey? and what is the point of criticising the absence of deficit financing in the past and yet labouring the point that direct taxes must now be raised (and in a recession to boot!)? But these are points of detail: I entirely agree that direct taxes will have to be raised, though I don't agree that the present system is regressive (except for Salaries Tax, and then in the middle, not the upper range) and although I would prefer a move to a more comprehensive income tax (Hong Kong does not have an income tax except for those few who elect for personal assessment).

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CODE 18-77

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