TNAG-0754-FCO40-958-Threat-to-Hong-Kong-1978 — Page 19

UK EYES A

5.

6.

Page 3 of 5 pages

Hong Kong will continue to provide a great variety of valuable opportunities:

- an expanding market for Chinese products;

continuing entrepot and shipping facilities (although these may become

marginally less important as China's trading problems ease and domestic

cargo handling facilities improve);

further scope for providing financial services and earning greater

associated profits as Hong Kong's role as an East Asia financial

centre expands in the near future;

increased business profits as Chinese commercial, and now industrial,

activities expand;

increased remittances

factor in the foreign exchange earnings programme;

entry point for increased tourism on the Chinese mainland;

an important

In the light of the Chinese Government's current economic policies the only

economic justification for a take-over of Hong Kong would be if China's foreign

exchange carnings would, subsequent to the take-over, be greater than they are at

present. One method of attempting to maintain foreign exchange earnings would be

to operate Hong Kong as a customs-free zone where foreign manufacturers might be

encouraged to continue operations. However even the current Chinese pragmatic

economic leadership would probably find this hard to accept or justify ideologically.

Any take-over would probably therefore nationalize all industry (with the Chinese

owners probably retained, where possible, as managers as in Shanghai in 1949); integrate

Hong Kong economically with China and strictly control foreign exchange transactions.

UK EYES A

THIS IS A COPY

THE ORIGINAL HAS BEEN RETAINED IN THE DEPARTMENT UNDER

SECTION 3 (4) OF THE PUBLIC RECORDS ACT 1958