TNAG-1267-FCO40-1616-Economic-situation-in-Hong-Kong-1983 — Page 312

CONFIDENTIAL

11. It should be noted that the Territory could be as adversely

affected by a lower level of inflows caused by a loss of confidence.

This would show up in falls in inward investment (2A), and lower

deposits in the monetary system by non-residents (again affecting 2F).

B.

Hong Kong Statistics

12. Tables III a) and b) (attached) use published data to fill in

some elements of the flow of funds framework for 1981 and 1982.

The absence of information in most categories of the balance of payments is clear, in particular:

-

the current account figure is incomplete, covering net

visible and invisible earnings, but not remittances and

earnings from past investment;

there is no information at all on investment flows or trade

credit provided by non-residents;

deposits with the banks and DTCs are not distinguished by

type of holder, that is, resident or non-resident.

13.

The 'lending' row (H) includes changes in amounts due from banks abroad. The change in non-deposit liabilities (G) is the

result of funds put at the disposal of banks and D TCs in Hong

Kong by banks abroad (the size of both these items shows the

importance of the Territory in international banking). In 1981

there was a net increase in funds in Hong Kong as a result of

these transactions. In 1982 the financial system was a net

lender overseas.

C Claims concerning financial flows

14.

Official and quasi-official (eg HKSB) statements about capital flight from the Territory have tended to stress two indicators:

the level of deposits (HK$ and/or foreign currency)

within the Hong Kong financial system;

15.

the net foreign currency asset position of the financial

system.

Reference to the framework of table II shows that use of the

money supply figures, or some element of them related to customers' deposits will obscure possible important changes simply because

residents' and non-residents' deposits are not distinguished. A run-down in non-residents' deposits following a blow to confidence

/may

CONFIDENTIAL