TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 195

1

1200

SECRET

SLCHET

FR HONG KONG 260907Z SEP 83

TO FLASH OTTAWA (FOR PS TO PM)

ANNEX 1

TELEGRAM NUMBER 11 OF 26 SEPTEMBER

INFO IMMEDIATE FCO, UKNIS NEW YORK (FOR FS TO S OF S), WASHINGTON

(FOR PS TO CHANCELLOR OF THE EXCHEQUER)

* (FERSONAL FOR

CLIFT HKD)

FOR PRIVATE SECRETARY TO PRIME MINISTER FROM GOVERNOR.

FUTURE OF HONG KONG: FINANCIAL SITUATION.

AT THE CLOSE ON 23 SEPTEMBER 1983 THE HONG KONG DOLLAR/U.S.

DOLLAR EXCHANGE RATE WAS 8.73 COMPARED WITH 6.12 A YEAR AGO, A DEPRECIATION OF 42.5 PERCENT. THE TRADE WEIGHTED EXCHANGE RATE

INDEX STOOD AT 62.6 COMPARED WITH 67.3 A YEAR AGO, A FALL OF

28.3 PERCENT. THE EXTENT OF THE DEPRECIATION WAS PARTICULARLY

SHARP IN OCTOBER LAST YEAR AND IN JUNE THIS YEAR, BUT IT IS

THIS PAST WEEK WHICH HAS HAD A TRULY DRAMATIC AIR ABOUT IT:

BETWEEN THE CLOSE ON 16 SEPTEMBER AND THE CLOSE ON 23 SEPTEMBER

THE RATE FELL FROM 7.76 TO 8.73, OR BY 10.8 PERCENT. THE TRADE

WEIGHTED INDEX FELL FROM 68.3 TO 52.7, OR BY 8.2 PERCENT. BY

THE CLOSE AT NOON ON SATURDAY 24 SEPTEMBER THE RATE HAD PLUNGED

TO 9.50 AND THE TRADE WEIGHTED INDEX TO 57.2.

3. THE HANG SENG INDEX ALSO DECLINED SHARPLY THIS PAST WEEK FROM

916 AT THE CLOSE ON 16 SEPTEMBER TO 786 AT THE CLOSE ON 23 SEPTEMBER, ON WHICH DAY IT DECLINED BY 63 POINTS. IN 1982 (MONTHLY AVERAGE) THE INDEX WAS 1106 AND IN THE FIRST HALF OF THIS YEAR

WAS 967. TOTAL TURNOVER IN 1962 WAS HONG KONG DOLLARS 46 BILLION, COMPARED WITH 106 BILLION IN 1981 AND 19 BILLION IN THE FIRST SIX

MONTHS OF THIS YEAR.

3. TO SONE EXTENT, THE WEAKENING TREND OF THE EXCHANGE VALUE

OF THE HONG KONG DOLLAR OVER THE PAST YEAR HAS BEEN A REFLECTION

OF THE STRENGHT OF THE US DOLLAR WORLDWIDE AND THERE HAS BEEN SOME

SPECULATIVE ACTIVITY FROM TIME TO TIME, BUT ANXIETY ABOUT THE FUTURE HAS UNDOUBTEDLY BEEN THE HAIN FACTOR. CERTAINLY, THE RECENT COLLAPSE REFLECTS THE CUMULATIVE EFFECT OF THE BARRAGE OF

CHINESE PROPAGANDA OVER THE PAST COUPLE OF MONTHS. THE MARKET 4S NOW INDIFFERENT TO POSITIVE ECONOMIC NEWS, SUCH AS AN UPWARD REVISION OF THE GDP FORECAST FOR 1983: IT IS SUSCEPTIBLE TO RUMOUP-

NONGERING AND UNHELPFUL COMMENTARY BY THE CHINESE: AND IT IS READY

TO PLACE THE WORST POSSIBLE INTERPRETATION ON THE ABSENCE OF ANY AUTHORATITIVE STATEMENTS DEMONSTRATING THE PROGRESS OF THE NEGOTIATIONS. AT THE END OF LAST WEEK AND OVER THE WEEKEND THERE WAS

SOMETHING AKIN TO PANIC IN THE AIR. THERE WAS A SCRAMBLE TO DUMP

HONG KONG DOLLARS AND GO LONG IN U.S. DOLLARS AND GOLD. THERE WAS

EVEN SOME DOMESTIC STOCK FILING OF LASIC FOODSTUFFS.

4. THE CHINESE HAVE ARGUED THAT THE WEAKNESS OF THE HONG KONG DOLLAR IS AN ECONOMIC PHENOMENON AND NOT A FOLITICAL ONE: NORE

RECENTLY THEY HAVE PERSISTENTLY ACCUSED THE HONG KONG GOVERNMENT

EITHER OF INERTIA OF OF ACTUALLY CNG HEERING THE SITUATION WITH

A VIEW TO INFLUENCING THE NEGOTIATIONS. SECRET

15.

}

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