TNAG-0845-FCO40-1055-Visits-of-Foreign-and-Commonwealth-officials-to-Hong-Kong-1979 — Page 150

UNCLASSIFIED

VISIT BY MR PETER BLAKER MP TO HONG KONG: 23-25 SEPTEMBER 1979

BRIEF NO. HK3e:

SUBJECTS FOR DISCUSSION WITH THE GOVERNOR

THE HONG KONG ECONOMY

1. At the beginning of 1979, the Hong Kong economy was showing

signs of becoming dangerously overheated. During the previous year

a rapid growth in domestic demand, particularly from the construc-

tion industry, had drawn resources away from the export sector.

Full employment and growing prosperity led to increased consumer

spending and a sharp rise in imports. Despite an increase of 142%

in exports, the visible trade gap in 1978 widened sharply to

HK$ 9,132 million (1977: HK$ 3,868 million).

2. In this year's budget on 28 February, the Financial Secretary

announced measures to bring the growth rate in demand more into line

with the output of the economy. In the private sector, restraint

was introduced through higher interest rates and increases in banks'

liquidity ratios. In the public sector, the Government planned for

a budget surplus and rephased their capital expenditure programme to

limit the growth of public sector spending to 19.6% of GNP, the same

proportion as last year.

3.

The higher

The money

Developments since February suggest that these measures are

having the desired effect. Growth rates of private consumption

expenditure and Government expenditure have slowed down.

interest rates have reduced growth rates of bank loans.

supply is under control. There has been a relative shift in employ-

ment in favour of the export-oriented manufacturing sector.

are growing faster than imports: the visible trade deficit for the

first seven months of 1979 was 14% of the value of imports compared

with 16% for the same period last year. The Hong Kong dollar has

stopped falling.

Exports

/4.

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