TNAG-1238-FCO40-1551-Future-of-Hong-Kong-1983 — Page 63

CRS-8

of Hong Kong and other contested British territories (e.g. the Falkland

Islands and Gibralter), recognizing, in particular, the legality of the

second convention of Beijing,

which calls for the New Territories

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to revert to China in 1997. Without that land, Hong Kong would appear to

be unviable as a British possession.

Leaders in Hong Kong, meanwhile, have a much greater interest in the

colony's future and have yet to be reassured by pledges of British and

Chinese concern. As a result, there were signs of a serious decline of

confidence in the colony coincident with Prime Minister Thatcher's visit

to China and the publicized Sino-British differences over the status of the

territory. The stock market index dropped about 30 percent in the last four

months of 1982, and the Hong Kong dollar declined about 15 percent in the

same period relative to the U.S. dollar and other major currencies. Property

values in the colony continued to fall so that by late 1982 they were about

30 percent less than their level at the high point of the real estate market

in mid-1981. Press reports speculated about alleged large scale "flight" of

capital from Hong Kong to other economic centers in East Asia; spoke about

wealthy Hong Kong entrepeneurs obtaining exit visas in case rapid escape.

were necessary to safe havens abroad; and reported that these economic

leaders were determined to limit their future exposure in the colony while

increasing investment abroad.

Since the turn of the year, however, analysis has shown that the

decline in Hong Kong's economic fortunes had less to do with continued

over the colony's future status and more to do with other

economic difficulties stemming from an inflated real estate market and

the global recession. Thus, property values were seen as overdue for

nervousness