TNAG-0734-FCO40-938-Reports-of-Standing-Committee-on-the-Planning-Progress-of-Ho-1978 — Page 37

Nevertheless,

need to adapt to changing attitudes and a changing world. my visit made me very conscious of the danger of seeking in any simple way to apply to Hong Kong analyses or prescriptions derived from the very different circumstances of other countries- even other countries in South-east Asia. In so far as Hong Kong is unique, its problems and the answers to those problems are likely to have an element of uniqueness as well. This is by no means to say that the rationalisa- tions of the status quo to which I was often treated by leading Hong

but it Kong officials and businessmen are to be taken at face value; does enjoin a certain caution in making proposals for major changes.

Economic Management

M

the fact 3. The extremely open nature of the Hong Kong economy - that exports account for some 80% of GDP, that the import content of output is also very high, that there are no barriers to imports and no exchange controls places severe limitations on the extent to which the economy can be managed in the sense in which the term is understood here. The freedom of capital to flow in and out, for example, means that Hong Kong interest rates are very largely determined by what is happening to interest rates elsewhere, and by expectations of exchange rate changes: they are certainly not under the control of the Hong Kong authorities. By the same token, it is not really possible for Hong Kong to have an independent policy on the money supply. Similarly, exchange rate policy is circumscribed by the absence of exchange controls: it is true that to a certain extent minor fluctuations in the exchange rate can be eliminated, cr the path of adjustment to a more appropriate exchange rate eased, by intervention in the foreign exchange market; I would in fact judge that this could be done to a greater extent than some of those I spoke to claimed. Nevertheless the Hong Kong economy and its present (or potential) level of foreign exchange reserves are so small by compari- son with potential capital flows that no intervention could do more than slightly delay the effects on the exchange rate of any significant move into or out of Hong Kong dollars.

4.

These considerations in turn place some limits on the Government' use of its main policy instrument fiscal policy. Any sustained

/policy

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