TNAG-1267-FCO40-1616-Economic-situation-in-Hong-Kong-1983 — Page 223

CODE 18-77

Mr Williams

>

@Enter 212/

HKD

{ererence

Mr Hove (fr)

HKK 090/4

70

RECEIVED IN REGISTRY NO. 51

12 SEP 1983

DESK OFFICER

PA

REGISTRY

Action Taken

HONG KONG HALF-YEARLY ECONOMIC REPORT 1983

INDEX

1. The report demonstrates a recovery of manufacturing output for export, but suggests that continued uncertainty is affecting the economy.

The External Sector

2. Domestic exports in the first half of 1983 have increased by 9% in volume terms above the level achieved in the first half of 1982. This is due mainly to a rapid recovery in exports to the USA (growth of 16% on this basis). The depreciation of HK$ against the US$ will have aided competitiveness in this market, though attention is drawn in the report to the recent imposition of quotas by the US Government on new categories of imports.

3.

Total retained imports have started to rise in volume terms, particularly in the second quarter. Demand for imports of consumer goods remains weak. Imports of raw materials and semi-manufactures have increased very rapidly during the second quarter, an indication of the manufacturing recovery, though imports of capital goods are still depressed. ·

The Financial Sector

4.

-

The widest M3 definition of the money supply grew by 8.3% in Hl 1983, but as in 1981 and 1982 the foreign currency component grew faster than the HK$ component. In the H1 1983 the HK$ element actually fell by 2.7% with the foreign currency component increasing by 24.4%.

5. This is due to the shift in customer's deposits toward foreign currency denomination. Foreign currency deposits grew by 24.9% while HK$ deposits fell by 3.1%. HK$ deposits represented around half of all deposits at the end of June this year, having fallen from about 90% at the beginning of 1981.

6. The explanations offered in the report involve:

the continuing effects of lower interest taxes on non-HK$ deposits,

the prevalence of 'swap' arrangements (HK$ sold, the foreign currency purchased placed on deposit, with a contract to buy HK$ back at some point in the future),

higher interest rates on these deposits, and the valuation effect of a weakening HK$ leading to an increase in the HK$ value of foreign.currency deposits.

/ While