TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 244

GR 1200

SECRET

SECRET

FM HONG KONG 260907Z SEP 83

TO FLASH OTTAWA (FOR PS TO PM)

TELEGRAM NUMBER 11 OF 26 SEPTEMBER

HKK

100/7

RECCIVED IN REDUSANA

20 OCT 1983

INFO IMMEDIATE FCO, UKMIS NEW YORK (FOR (FOR PS TO CHANCELLOR OF THE EXCHEQUER)

* (PERSONAL FOR

CLIFT HKD)

DESK GRCER

INDEX

PA

OF S), WASHINGTON

FOR PRIVATE SECRETARY TO PRIME MINISTER FROM GOVERNOR.

FUTURE OF HONG KONG: FINANCIAL SITUATION.

See 6 Lee (11)

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 HT:

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

THE RATE FELL FROM 7.78 TO 8.73, OR BY 10.8 PERCENT. THE TRADE

WEIGHTED INDEX FELL FROM 68.3 TO 62.7, 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.

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

916 AT THE CLOSE ON 16 SEPTEMBER TO 785 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 1982 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 SOME 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 MAIN FACTOR. CERTAINLY, THE

RECENT COLLAPSE REFLECTS THE CUMULATIVE EFFECT OF THE BARRAGE OF

CHINESE PROPAGANDA OVER THE PAST COUPLE OF MONTHS. THE MARKET

IS NOW INDIFFERENT TO POSITIVE ECONOMIC NEWS, SUCH AS AN UPWARD

REVISION OF THE GDP FORECAST FOR 1983: IT IS SUSCEPTIBLE TO RUMOUR- MONGERING AND UNHELPFUL COMMENTARY BY THE CHINESE: AND IT IS READY

TO PLACE THE WORST POSSIBLE INTERPRETATION ON THE ABSENCE OF ANY

AUTHORAT IT IVE 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 PILING OF BASIC FOODSTUFFS.

4. THE CHINESE HAVE ARGUED THAT THE WEAKNESS OF THE HONG KONG

DOLLAR IS AN ECONOMIC PHENOMENON AND NOT A POLITICAL ONE: MORE

RECENTLY THEY HAVE PERSISTENTLY ACCUSED THE HONG KONG GOVERNMENT

EITHER OF INERTIA OR OF ACTUALLY ENGINEERING THE SITUATION WITH

A VIEW TO INFLUENCING THE NEGOTIATIONS. SECRET

15.