TNAG-0576-FCO40-709-Visits-of-UK-officials-to-Hong-Kong-1977 — Page 104

CODE 18-//

Mr Stewart

CONFIDENTIAL

Reference....

54

VISIT TO HONG KONG:

MEETING WITH THE FINANCIAL SECRETARY

1. You expressed interest in the meeting which I had with

Mr Haddon-Cave on 30 June during the course of my visit to Hong Kong. I have already recorded what Mr Haddon-Cave had to say about Hong Kong's sterling reserves (my minute of 16 July) and his enquiry about the status of the Planning Paper (my minute of 16 July, paragraph 3). Since it is not often that FCO officials have occasion to hear what Mr Haddon-Cave has to say he declined, for example, to come into the Office when he was on leave here earlier this year - it may be worth recording my encounter with him.

2.

T

I ought first to explain that my meeting with Mr Haddon-Cave was a fairly one-sided affair. I felt a little like a junior official from a Department outside HM Treasury meeting the Chancellor of the Exchequer for the first time and asking him to justify his policies. I was at a particular disadvantage since I saw Mr Haddon-Cave very early on during my visit and had not then picked up any local criticisms of his philosophy which I could have thrown at him for comment. Be that as it may, Mr. Haddon-Cave nevertheless seemed to think that he had to justify himself to the "FCO man" who, he supposed, held a fairly critial view of his attitude to fiscal affairs. At any event, according to the brief notes I made at the time, Mr Haddon-Cave advanced the following propositions: that the scope of the public sector should remain strictly defined and should not expand willy-nilly; that assertions of a doctrinaire approach on Hong Kong's part to matters of public expenditure, the level of taxation and deficit financing were ill-founded; that Hong Kong "deflates out of trouble and inflates into trouble", which, he said, was the reverse of what happened in other countries; that workers in Hong Kong were, if necessary, ready to accept a reduction in real wages because they accepted that Hong Kong's external competitiveness had to be maintained; and that the Hong Kong Government did not believe in intervening in the making of business decisions or in planning the economy because if its actions were proved wrong the Government would have to pay for the mistakes and the net result would be inflationary. Mr Haddon-Cave said that there were three rules of thumb by which he was guided: that debts should be avoided; that overheads should be reduced; and that, as suggested already, the Government should not end up having to finance its own mistakes.

3. The foregoing is a highly compressed account of what Mr Haddon-Cave said during a meeting which lasted about three- quarters of an hour and it may well not do justice to his views. It does, however, show, I think, that Mr Haddon-Cave remains unrepentant as regards his basic approach which, as stated in the brief for the Governor's recent visit, is inconsistent with the aims of the Planning Paper. Mr Haddon-Cave was evidently aware of the criticism which has been made of him at this end and was, I think, letting me know that he was not impressed by it.

/4.

It was

CONFIDENTIAL