TNAG-0750-FCO40-954-Visits-of-Sir-Murray-MacLehose--Governor-of-Hong-Kong--to-UK-1978 — Page 23

CONFIDENTIAL

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5. The Governor's draft needs to be considered in the light of Mr Michael Stewart's report on his visit to Hong Kong in April. As Mr Stewart said, his report is based on general impressions, rather than firm convictions. We should be cautious therefore about building too much on it. But two important points emerge from it which need to be borne in mind in drafting the new policy objectives paper:

as the date approaches when decisions will need to be taken about the future of Hong Kong after 1997 the Hong Kong Government will inevitably need to exercise increasingly direct control over the

(i)

economy;

(ii) at the same time ways will have to be found of satisfying the growing demand, particularly from younger people, for more say in the way the country

is run.

6. On the first point, the trend over the last ten years has been for the Government to assume a direct role in more and more aspects of life in Hong Kong. The Governor's draft paper confirms that this process will continue. But it is not clear whether this will extend to the actual management

of the economy.

In the Economic and Commercial Section the emphasis is very much on the traditional Government role of providing conditions in which normal market forces can operate: there is little to suggest that the Government contemplate having to step in and control those forces (except possibly the proposal "to complete and act on the work of the Advisory Committee on Diversifikation"). In the "Fiscal and Financial" Section there is a proposal that the Government should "keep under review the relationship between the Government and the Banks as Hong Kong evolves as a financial centre", but there is no suggestion that the Government should actually assume the full role of a Central

Bank.

CONFIDENTIAL

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