TNAG-0607-FCO40-755-Monitoring-progress-made-on-planning-papers-on-Hong-Kong-1977 — Page 27

CONFIDENTIAL

6. On balance the worth of the constitutional relationship in 1976 would have been a loss of £14.6m. Defence costs of £25m being mitigated by the sum of air traffic profit of £8.4m, value added on coinage of £0.5, and savings on representation of $1.5m. Even the full implementation of the Defence Costs Agreement in 1978, all other factors remaining unchanged, will not create an advantage to the UK.

7. Perhaps the most instructive conclusion from this section is that in comparison to total economic activity that part which depends on the constitutional relationship is extreme small beer. The total of all revenue and cost flows is around £117m. This represents 18% of UK - Hong Kong visible trade and 1.1% of Hong Kong global trade. Hong Kong's 1976 GNP.

The net disadvantage to the UK is 0.25% of

D. UK Investment in Hong Kong

1.

The Department of Trade publishes estimates of the book value of UK direct investment overseas every third year. It is important to remember that book values represent the historic cost of these assets and that, especially in times of high inflation they underestimate the current worth of assets. Data set out below demonstrates the development of investment in Hong Kong since 1962.

£m

1962

20.3

1965

29.7

1968

39.1

1971

47.4

1974

142.1

1975

160-190

The entry for 1975 is not from a published source but has been suggested by Department of Trade statisticians. These statistics make no provision for the worth of investment in banking and insurance, where there are problems of definition, or for oil related investment. It has been estimated that the return on direct investment in 1974 was £27m. This is a high figure but not out of proportion with the suggested book value for that year.

2. The recently commissioned private study estimates that portfolio investment in Hong Kong in interest or dividend bearing assets yielded £4m in 1975 which would imply a worth of £60m-£80m. Portfolio and direct investment together probably totalled £220m- £270m in 1975. Direct investment in Hong Kong represented less than 1.5% of total UK overseas direct investment in 1974. Twelve years earlier it had only been 0.6%. Earnings on portfolio investment in Hong Kong in 1974 represent only 1.7% of total UK portfolio earnings.

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13.