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such as the ability of the Government to run a budget deficit and the feasibility of a contributory old age pension scheme. However it will start to affect decision-making in the private sector within the next
5 years.
19. Hong Kong has adapted well to changing world conditions in the past, but may find this more difficult in the future as industrial development becomes more capital-intensive and more in need of high skills. A particular problem is the shortage and high price of land, which not only encourages the building of flatted factories which are unsuitable for more capital-intensive types of production, but also encourages small and medium-sized businesses to use their cash flow to purchase the leases of their factories rather than to invest in
modern plant and machinery.
20.
There are obvious dangers about subsidising industrial land: it is reasonable to argue that the price of land should reflect its genuine scarcity, and that Hong Kong should not compete with Taiwan or South Korea in types of industry which require relatively large quantities of land. Nevertheless it may be that certain basic industrial processes, particularly in the metal fabrication industries,! are of such basic importance to future industrial development in Hong Kong that they should be subsidised: certainly this was a view pressed on me by one very able young Chinese businessman. In other words, wider social considerations could mean that the shadow price of land for planning purposes should be lower than the actual price for industrial as well as for social development. Although a beginning has been made with industrial estates, more thought is needed on the pattern of future industrial development and the need for land and water that it will entail. In this connection, the work of the Advisory Committee on Diversification will be crucial, though there is an obvious danger that this will simply become a talking shop and a convenient mechanism for, absorbing awkward questions about the
future.
21.
In general, Hong Kong will have to trade increasingly up-market if it is to survive the growing competition from other super- competitive countries and the growing protectionist pressures in some
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