TNAG-0607-FCO40-755-Monitoring-progress-made-on-planning-papers-on-Hong-Kong-1977 — Page 25

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sector visibles and invisibles balance would now appear to be incorrect, though without a series of observations over several years even this qualification cannot be made with conviction. Invisible surpluses globally for the UK have demonstrated almost unrequited growth since the mid fifties and Hong Kong invisible surpluses might well have had the same characteristic. It would be unlikely that the much larger visible deficit of 1976 had been followed by much enhanced invisible earnings.

6. The UK is in balance of payments deficit with Hong Kong. The private visible trade deficit is growing markedly and was not offset by the surplus on invisibles in 1975. UK Government payments to Hong Kong will decrease as a result of the Defence Costs Agreement.

C.

Economic Consequences:

Relationship

The UK Hong Kong Constitutional

1.. The vast proportion of the UK's economic linkage with Hong Kong is no different from that with any other state but there are areas of economic activity which are conditioned by the responsibilities and advantages conferred by dependence. In scope these responsibilities and advantages are few though they include some areas of significance and controversy. They include defence, air traffic, coinage purchase, and representation. Though this is not perhaps an exhaustive list no other areas have been identified or quantified. It is probably correct to suggest that the constitutional relationship facilities lobbying to the advantage of UK producers for certain public contracts but open tendering and a reputation as a sophisticated purchaser typify Hong Kong's attitude to public expenditure. In essence this section of the paper takes the view that few aspects of Hong Kong's total economic activity are shaped by the link with the UK though there is an awareness that the very existence of an economically active Hong Kong depends on the preservation of the existing triangular relationship with China. A much broader interpretation of the remit would need to face the real political

The problem of a changed Hong Kong relationship with China. economic consequences of such a change would be difficult to assess. Moreover it is in the context of the present system that questions of UK exploitation are raised. Only the narrow view attracts attention below.

2. Defence expenditure in Hong Kong is now determined under the Hong Kong Defence Costs Agreement under which the Hong Kong Government will pay 50% of the costs of an agreed garrison in 1976-77, 62% in the following year, and 75% from 1978-79 onwards. Defence expenditure in 1976-77 was actually higher than allowed for under the agreement by a slight though imperfectly known amount. As yet the garrison strength in Hong Kong has not reached those levels proposed under the agreement though it is expected to do so by 1978. The agreement is scheduled initially for seven years and is renewable for further five year periods which are subject to possible variations in the proportions of payments.

/In

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