TNAG-1242-FCO40-1555-Future-of-Hong-Kong-1983 — Page 163

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government revenue, a substantial proportion of which is obtained from the sale

of land leases. The ability of the government to embark on new development

projects, such as, for example, a new airport and the extension of the Mass Transit

Railway system, has thus been curtailed.

4. Both the value of the Hong Kong dollar and investment in capital equipment and

long term property ventures seem likely to remain depressed until confidence in

the political future of Hong Kong is re-established. However, while political

uncertainties have caused some outflow of capital to other countries, notably the

United States, Europe and Singapore, this has not yet been great. Considerably more important has been the transfer of Hong Kong dollar deposits to foreign currency

deposits. The latter accounted for about Hong Kong $100 billion at the end of

1982, an increase of 231 per cent during the year. Hong Kong dollar deposits

showed little change during the same period. During the first 6 months of 1983

foreign currency deposits have risen by a further 25 per cent to Hong Kong $123 billion

while Hong Kong dollar deposits have declined by 3.1 per cent to Hong Kong $131 billion

The movement away from the Hong Kong dollar therefore has continued during the

current year but appears to have slowed significantly.

5. While an element of the movement from local to overseas currency will reflect

restocking to meet increased world demand for exports (largely from the United States), much the greater part of the movement appears to represent a deliberate

decision by local investors away from the Hong Kong currency, no doubt both to

protect themselves from the effects of its continuing decline in value and also to

prepare for the movement of funds away from the territory, if this becomes necessary.

This in turn, of course, is reflected in the diminishing value of the Hong Kong dollar

itself which, it is generally reckoned would be valued at between US $ 6 and 6.5 if

political uncertainties were non-existent.

6. It therefore seems that while a significant amount of capital has already

flowed out of the territory, this has been balanced to a large extent by incoming

overseas investment, particularly from the United States. There is, however,

a rapidly growing reservoir of funds which, while as yet remaining in the territory, have been converted into overseas currencies (largely the US dollar) and which could

rapidly be transferred overseas if political developments caused a panic.

The

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