Mr Gunstriz
Quatrill
K 247
Mr Stewart
K 246
CONFIDENTIAL
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W. Thomsen
HKK TO 2121/616/1.
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7/10
Q.13
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1. I attach a minute prepared by Mark Hull of the Economist's Department at my request dealing in detail with the minor technical points raised by the Governor and in subsequent telegrams on the question of the likely effect on Hong Kong's GDP if the Commission's proposed mandate were applied. This is largely academic now unless Hong Kong returned to the charge. It does however suggest a possible scenario which Mr Stewart may care to discuss with the Governor when he visits Hong Kong.
2. Briefly, this runs as follows:
"As you (the Governor) said in your opening speech to LegCo the Communities' proposals in the bilateral negotiations within the MFA are likely to lead to a short term reduction in the growth of GDP unless other measures are taken to counter- act this. I do not propose to argue on the exact amount of any such reduction, it is generally agreed at between 1 and 1.5 percentage points.
Since the growth of GDP can be affected equally well by government expenditure as by exports, perhaps now is the time to increase government expenditure to enable it to fulfill its counter-cyclical role to which your Finance Secretary pledged himself in this year's Budget.
This being so, we would suggest an even greater increase in expenditure on social services for the years 1978/79 and 1979/80 and a shortening of time scales on existing proposals. This should enable the growth of GDP to continue at its present rate until such time as the extremely flexible economi and labour forces of Hong Kong can make good the loss on the textile front."
5 October 1977
Johaugen
J Thompson K 245
Hong Kong & General Department
These ideas are probably worth putting to the Governor, through
as you pointed out it is easier to do on paper than in practice.
CONFIDENTIAL
W. Chantill
5/10
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