TNAG-1051-FCO40-1301-China-s-economic-relationship-with-Hong-Kong-1982 — Page 47

18

PS/PUS

MICK 0911!

Kizlya at MEP / NO. 31

15 DECISI

DESK OCONFIDENTIAL

INDEX

mr glift HKSD

fos 11112

BENEFIT TO CHINA FROM HONG KONG

14/2

See(17

1. I attach a note on this. Exact figures are not available because of lack of exchange controls. By far the most important factor is the foreign exchange one. China's balance of payments would be very seriously affected if Hong Kong were not available as an independent source of foreign currency. Not only would direct earnings in Hong Kong dollars dry up, but the financial institutions which channel much of China's other business through the Territory would scale down their operations sharply.

2.

Chinese investment in Hong Kong comes some way behind but is also important. Its value to China depends primarily on property values and active banking and retail business. These would slump if Hong Kong were taken over by China.

3.

Chinese leaders have frequently acknowledged Hong Kong's contri- bution to the 'modernisation' programme. This is clearly seen as justifying and overriding their tolerance of an imperialist enclave on the mainland.

8 December 1981

cc Mr Donald

FED

Dis

R D Clift

Hong Kong and General Department

CONFIDENTIAL

1/

MICHAEL PALLISER