TNAG-0747-FCO40-951-Visits-of-Foreign-and-Commonwealth-officials-to-Hong-Kong-1978 — Page 47

Mr Murgay

CONFIDENTIAL

M.K.G.D.

Некодын

RESEA

1 1 JUL 1978

63

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W8

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PS/Lord Gotenwy-Robert:

Goxenwy-Ro

MR MICHAEL STEWART'S VISIT TO HONG KONG

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1. Mr Michael Stewart, the Special Economic Adviser to the Secretary of State, visited Hong Kong from 17 to 23 April. His main purpose, as set out in his minute of 23 February to the Secretary of State, was to impress on the Governor and his Financial Secretary the Secretary of State's personal interest in up-dating Hong Kong's budget procedures, but in practice his discussions ranged over the whole field of economic and social policy.

Mr Stewart's report on his visit is attached. A copy was sent to the Governor by the PUS and we have recently received

Sir Murray MacLehose's generally favourable comments. We now need to consider how best to take matters further.

2. Mr Stewart's report lays great stress on the uniqueness of Hong Kong and the risks involved in seeking to apply techniques of economic management derived from the very different circumstances of other countries he accepts, for example, that the peculiar vulnerability of Hong Kong to a loss of confidence would make it very difficult for the government to adopt a sustained policy of budget deficits. That said, he believes that the Hong Kong Government will need in future to play a more direct and less cautious role in managing the economy and will need, too, to involve more people, particularly younger people, in the business of government. He has also outlined certain changes which he considers practicable, for example, in the tax system, though in general he has avoided making specific recommendations.

3. On the question of how best to promote further change, Mr Stewart sees HMG's main rôle as one of "strengthening the hand of the more enlightened members of the administrative and business community in whatever way is possible whenever the occasion offers, rather than of pressing specific reforms too hard or too fast". I agree. Attempts to impose ideas from London tend to be

CONFIDENTIAL