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5. There are some positive advantages from the connection with Hong Kong. It is difficult to quantify the commercial benefits. Direct British investment in manufacturing industry is very small (about £14m in 1974) and much smaller than similar investment by the United States (£40m) and Japan (£30m) but there are important British financial and commercial investments for which no figures are available. The British share of the Hong Kong market for imports (£157m in 1975) was only 6% of the total as compared with Japan (21%) and the United States (14%). Hong Kong accounted for only 8% of total British exports and is declining as a percentage of the total. Hong Kong exports to Britain
in 1975 were valued at £307m, % of total Hong Kong exports, producing a deficit for Britain in the balance of trade of £150m. A Hong Kong estimate of the net value to Britain of the trade in invisibles is £129m annually; but the Central Statistical Office are unable to confirm this because of conceptual and practical difficulties in producing detailed balance of payments estimates on a bilateral basis. The United Kingdom gains special advantages from the connection with Hong Kong: it is an important bargaining counter in air services negotiations
II. The Chinese Interest
6. Although we believe that Hong Kong is not a political issue for Chinese leaders at present, there is nevertheless an element of political embarrassment in its continued existence. Hong Kong is a reminder of China's weakness in the 19th century and remains an area claimed by China outside her administrative control. The existence of the Colonies of Hong Kong and, to a lesser extent, Macao has been used by the Soviet Union in an attempt to undermine China's credentials with the Third World and in waging the ideological war of words between them. Its prosperity is a
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THE ORIGINAL HAS BEEN RETAINED IN THE DEPARTMENT UNDER SECTION 3(4) OF THE PUBLIC RECORDS ACT 1958
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