CONFIDENTIAL
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By coincidence, the US dollar showed an outstanding strength against almost all world currencies. this would have occurred even if there had been no concern about the future of the territory, but the new concern compounded fears. The Hang Seng Index fell further and the trade weighted index of the Hong Kong dollar dropped from about 87 to 79, (It has since dropped further.) In October the growth forecast of GDP had to be revised downwards to 4% or less: the final figure was 2.4%. The failure of developers to bid for or take up options on some major sites in the centre of Hong Kong left a large hole in the capital revenue account and a large deficit on the budget, the first deficit since a small one in 1974-75.
Chinese Activities after the Prime Minister's Visit to Peking
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This jittery mood was exacerbated by Chinese activities. It had been agreed in Peking that the talks on the future would be confidential. But through a process of speaking to selected visitors and inspired articles in the Hong Kong left wing press, they quickly revealed the substance of their position in order to seek support for their own proposals for the future of the territory. The temptation was strong to respond in kind, pointing out publicly that the Chinese plan would not work because it would not command international or domestic confidence; but that temptation had to be resisted. Public controversy could only have led to a hardening of positions on both sides. Moreover, such a controversy could, in itself, have engendered fears that no settlement would be forthcoming and this in turn would have had its impact on confidence in Hong Kong.
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CONFIDENTIAL
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