SECRET
DSR 11C
It is
The fall in the Hong Kong dollar's exchange rate has been
almost entirely due to political reasons. The Hong Kong
economy, politics apart, is basically healthy.
feeling the effects of recovery in the USA. Exports grew by 9% in real terms for the first half of 1983 compared
with the same period in 1982, and re-exports by 4%.
However for several months uncertainty about the future
has led to a steady, though fluctuating, decline in
the dollar's exchange rate. This has been accelerated
in the past two weeks by gradually intensified Chinese
propaganda indicating their intention to recover both
sovereignty and administration over the territory and
attacking the attitude of the British Government.
יז
The effect of the decline has been:
(a) further to fuel the lack of confidence. The slide in
the exchange rate is thus self-generating. The atmosphere
is always volatile.
(b) Initially to help Hong Kong exports but increasingly
to raise prices of imports and stimulate inflation (now
11%).
(c) To increase the potential for unrest in Hong Kong.
This does not give rise to serious concern at present.
Although there have been some protests about rising
prices, it is the political future that preoccupies the
people. But if unrest were to develop for political
reasons it could be fuelled by economic worries.
(d) To hit investors, particularly those in property.
Mainland Chinese concerns are themselves being hit both
in terms of capital investments and income designated
in Hong Kong dollars.
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