BEST ESTIMATE ON THE BASIS OF THE INFORMATION NOW AVAILABLE.
BUT GIVEN THE VULNERABILITY OF THE HONG KONG ECONOMY TO UNFAVOURABLE EXTERNAL FACTORS, THE EVENTUAL GROWTH RATE CAN
STILL BE ADVERSELY AFFECTED BY UNPREDICTABLE ECONOMIC AND
POLITICAL EVENTS.
2. THE DEPRECIATION OF THE HONG KONG DOLLAR OVER THE PAST YEAR APPEARS EXCESSIVE IN TERMS OF THE UNDERLYING ECONOMIC FUNDAMENTALS, WHICH INDICATED AN EXPORT-LED RECOVERY.
SUCH WEAKNESS TO A LARGE EXTENT REFLECTS GROWING ANXIETY
ABOUT THE POLITICAL FUTURE OF HONG KONG.
3. THERE HAVE BEEN SUGGESTIONS THAT THE 10 PERCENT INTEREST WITHHOLDING TAX ON HONG KONG DOLLAR DEPOSITS SHOULD BE ABOLISHED IN ORDER TO LEND FURTHER SUPPORT TO THE EXCHANGE RATE. IN THIS CONNECTION, IT SHOULD BE NOTED THAT THE ESTIMATED REVENUE FROM INTEREST TAX IN 1983-84 IS DOLLARS 620 MILLION. ALTHOUGH INDICATIONS ARE THAT THE ACTUAL YIELD WILL BE LESS, IT WILL STILL PEPRESENT A VERY LARGE SUM, PARTICULARLY IN VIEW OF THE CURRENT BUDGETARY POSITION. ALSO OF CONCERN IS THE POSSIBLE EFFECT THE
ABOLITION OF THE TAX MIGHT HAVE ON PROFITS TAX REVENUE. FURTHERMORE, THE EFFECTS OF THE ABOLITION OF THE TAX SHOULD. NOT BE VERY DIFFERENT FROM THOSE OF INCREASING INTEREST RATES BY ONE PERCENTAGE POINT. THE PSYCHOLOGICAL EFFECT MAY, HOWEVER, BE SUBSTANTIAL.
4. THROUGH ITS EFFECT ON HMPORT PRICES, A DEPRECIATION OF THE HONG KONG DOLLAR PUSHES UP THE RATE OF INFLATION. IF THE HONG KONG DOLLAR HAD NOT DEPRECATED IN THE PAST TWELVE MONTHS - PARTLY DUE TO CONFIDENCE FACTORS - THE RATE OF INFLATION WOULD HAVE BEEN MUCH LOWER.
5. PRICES AND RENTALS FOR COMMERCIAL AND, PARTICULARLY, INDUSTRIAL PROPERTY HAVE NOW FALLEN TO A LEVEL WHICH PLACES HONG KONG IN A HIGHLY COMPETITIVE POSITION IN COMPARISON WITH OTHER BIG CITIES - PARTICULARLY IN TERMS OF FOREIGN CURRENCY, WHICH SHOULD BE ATTRACTIVE TO FOREIGN AND DOMESTIC INVESTORS.
YOUDE
MINIMAL
HKD
3
COPIES TO:
HONG KONG GOVT. OFFICE,
LONDON
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