TNAG-0944-FCO40-1163-Future-of-Hong-Kong-1980 — Page 69

CPS 480

SECRET

FM HONG KONG 041026Z SEP

SECRET

TO IMMEDIATE PEKING

TELEGRAM NUMBER 226 OF 4 SEPTEMBER, 1980.

Akk

oudi

FOR HEAD OF CHANCERY.

RECEIVED IN REGISTRY NO. 51

93

THE FUTURE.

PARAGRAPH 4 OF MY TEL NO 1111 TO FCO HONG KONG LEASES AND 1980

INDEX

SK OF CER

PA

1. FOLLOWING IS THE BACGROUND NOTE ENCLOSED WITH MY LETTER OF 22 AUGUST TO CLIFT, HONG KONG AND GENERAL DEPARTMENT: 9/

BACKGROUND NOTE ON CONFIDENCE IN THE HONG KONG ECONOMY: A) LONG-TERM PROBLEM

REGISTRY

Action T

THIS CONSISTS OF WHEN AND HOW THE ADMINISTRATION OF HONG KONG

WILL BE CHANGED AND IN WHAT WAYS. THE SOLUTION ADOPTED COULD

HAVE A PROFOUND EFFECT ON INVESTMENT AND CONFIDENCE IN HONG

KONG AND THUS IN HONG KONG'S FUTURE ROLE. THOUGH CONCERN ABOUT

THE FUTURE ALREADY EXISTS IN HONG KONG IT IS NOT YET AN URGENT

PROBLEM, THE ASSURANCES ABOUT INVESTMENT GIVEN BY DENG XIAPOING HAVE HELPED, HONG KONG'S PROSPERITY REMAINS HIGH, AND THOUGHT IT IS NOT TOO SOON TO THINK ABOUT A SOLUTION NOTHING DEFINITE IS

NECESSARY AT PRESENT.

B) SHORT-TERM PROBLEM

THIS CONSISTS OF HOW TO GAIN TIME FOR (A) BY AVOIDING SITUATIONS

THAT PRECIPITATE PREMATURELY A CRISIS OF CONFIDENCE ABOUT THE

LONG-TERM FUTURE OF HONG KONG. EXAMPLES ARE:-

(1) INDIVIDUAL LEASES IN THE NEW TERRITORIES ISSUED BY THE HONG KONG GOVERNMENT (ALL OF WHICH EXPIRE IN JUNE 1997) BECOME TOG SHORT TO BE ECONOMIC, WITH RESULTANT SLUMP IN INVESTMENT IN REAL ESTATE AND INDUSTRY. THE CRITICAL DATE WILL BE 1982 SINCE STANDARD MORTGAGES ARE 15 YEARS. PROVIDED LONGER LEASES CAN BE

GIVEN SOON THE ISSUE WILL BE AVOIDED.

(11) THE HONG KONG GOVERNMENT BECOMES UNABLE TO RAISE LOANS, BECAUSE OF LACK OF INTERNATIONAL CONFIDENCE, TO FINANCE MAJOR PROJECTS SUCH AS A NEW AIRPORT, AND THIS IS KNOWN TO BE THE CASE. THIS WILL COME UP IN 1982/3 AND THERE ARE OTHER EXAMPLES ABOUT THE SAME TIME. SUCH PROJECTS AND HOW TO TACKLE THEM WILL HAVE TO BE DISCUSSED WITH THE CHINESE GOVERNMENT, BUT THE PROBLEM OF SECURING FINANCE WOULD BE EASED IF AT THE TIME LOANS ARE SOUGHT (IE 1982/83) UNCERTAINTY HAD BEEN REMOVED ABOUT POST-1997 LAND VALUES AND TITLES AS IN (1) ABOVE. C) IF THE SHORT-TERM PROBLEM IS NOT MET

THERE IS NO IMMEDIATE QUESTION OF THE SORT OF SAUVE-QUI-PEUT THAT OCCURRED IN SHANGHAI IN 1947/48 WHEN WHOLE FACTORIES WERE DISMANTLED AND OWNERS AND WORK FORCES EMIGRATED. BUT A VERY LARGE AMOUNT OF CAPITAL IN HONG KONG IS IN REAL ESTATE. THIS SORT OF PROPERTY IS NORMALLY SOLD WHILE IT IS STILL BEING BUILT. DEVELOPERS THUS RECOVER THEIR CAPITAL FAST. SO LONG AS CONFIDENCE LASTS THIS WILL BE PLOUGHED BACK INTO FURTHER DEVELOPMENT. IF CONFIDENCE FAILS (1.E. BECAUSE OF (1) OR (11) ABOVE, A PROGRESSIVELY HIGHER PROPORTION OF THE CASH FLOW WILL

/BE DIVERTED

SECRET