TNAG-0754-FCO40-958-Threat-to-Hong-Kong-1978 — Page 20

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Wasteful use of foreign exchange for imports could be controlled but it would

still be necessary to import capital goods, raw materials and foodstuffs in so

far as these could not be substituted for from China itself. Furthermore if China

wanted to retain its high standing in the international financial community she

would have to pay compensation for foreign owned assets in Hong Kong.

7. It is unlikely that Hong Kong's foreign exchange earnings would remain at the

same level. It must be expected that all expatriates and many Chinese businessmen

and skilled workers would migrate rather than be denied opportunities for

individual enterprise unless the take-over was exceptionally swift and unexpected.

Although it might be possible to replace their business expertise it would be less

easy to replace their adroit overseas marketing expertise on which the major

export industries of Hong Kong, eg textiles, electronics, and toys, rely for

reaching and, most importantly adjusting to, the most lucrative world markets.

Certain markets eg Great Britain, might close as retaliation to Chinese action

and any trade preferences would probably disappear. The loss of the USA market,

which the Chinese government must view as a serious possibility following a take-

over, taking 34% of exports would seriously hit Hong Kong. Part of the entrepot

trade would become direct exports but that element which involves covering Chinese

goods with politically acceptable labels would disappear. China would find it

difficult,in current circumstances at least, to make up for the loss of re-exports

to Indonesia, USA, Thailand and, of course, Taiwan. China might try to utilize

centres such as Singapore and Manila for this trade but they would probably find it

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