TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 188

1

SECRET

From:

JB UNWIN

28 September 1983

1.

2.

MR MIDDLETON

CC

Sir T Burns

Mr Littler

CHANCELLOR OF THE EXCHEQUER

Mr Lavelle

HONG KONG

Mr Peretz

Mr Gifford - FCO ... Mr Holland B/E

As requested by the Chancellor we have, with the help of the Bank and the FCO, made

a rapid appreciation of possible responses to the financial situation in Hong Kong

This minute and annexes summarise the results of that work as at the time of graft.....

If further information becomes available in the course of today, I will forward th.

separately.

2.

I should enter two caveats at the outset:

(i) Our assessment is based on such information as we have been able to muster between us quickly in London (I am mainly indebted to the Bank).

For obvious reasons we have not at this stage consulted more widely. I

should be surprised if the Hong Kong authorities have not worked over all the options themselves and further study would need to be done in consult-

ation with them;

(ii) The FCO have stressed to me that in their view any move by HMG to support the Hong Kong dollar would not only carry the financial consequences discussed below (the logic of which points towards HMG in some sense assuming control over the Hong Kong economy) but would also represent a radical

change in the nature of the current political negotiations with China, As I understand it, the constitutional position is that in the last analysis HMG would carry ultimate responsibility for Hong Kong (the FCO will provide further advice on this); but in the negotiation with China we are trying to demonstrate that in practice we can offer Hong Kong a more effective autonomy than they can. There is also the risk that if we become financially committed to supporting the Hong Kong the Chinese might themselves seek to exploit this in the negotiations; they would be able to put a direct financial squeeze on us through further statements and actions affecting confidence in the Hong Kong $. For these reasons any further consideration of these issues must be kept on as restricted a basis as possible. Even the knowledge that studies are taking place could itself have the consequ- ences we wish to avoid.