TNAG-1483-FCO40-2037-Economic-situation-in-Hong-Kong-1986 — Page 287

CODE 18-77

AWO Ltd. 7/84

나

Mr. Thomas 112

Mr Leeka HKD

J

CONFIDENTIAL

VISIT TO HONG KONG

1.

Reference......

HKK 090/2

REGISTRY

11 FEB 1986

BRARY

AjB 1/

I attach a record of meetings abranged the DPA during the period 27-29 January. A very useful programme covered officials concerned with the economy, the budget, banking supervision and trade and industry, economists in the Hong Kong Bank and factory visits.

THE ECONOMY

2.

The forthcoming Budget will probably announce a low figure for real GDP growth during 1985, of about 1%. This is far lower than most expectations by commentators in Hong Kong, who have been predicting growth below the official forecast, but still around 3-4%. Domestic exports fell by about 6% in volume terms during the year, mainly due to slower growth in the US.

3.

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The weakness in manufacturing investment over the past 2-3 years suggests continuing uncertainty about the future. There was widespread concern that failure to keep up with the latest techniques particularly in electronics was leaving the Territory reliant on a fairly static product range and that the much-vaunted flexibility in production had not been much in evidence.

4.

If this situation continues, it will combine with the effects of greater competition from other South East Asian countries and tend to reduce the rate of growth of the Territory's exports. (There is something of a mystery about this effect of uncertainty, since traditionally investors would have looked to see an investment paying itself back within 4 or 5 years. Possibly the effect of increasing sophistication in many consumer goods is to make demands on research and the minimum economic scale of investments which Hong Kong's manufacturing base is simply too small to undertake.)

5.

The management of the electronics concern I visited made a strong plea for government assistance to improve the technology available, seemingly wanting advanced US and Japanese companies to set up in association with HK companies. They felt that political uncertainty was deterring some inward investment in Joint ventures.

6.

Shifts in activity across to the Shenzhen SEZ seem to have been fairly limited, restricted to land-intensive, or dirty and hazardous operations which would face more severe regulation in Hong Kong. Machinery which is no longer economic at wage levels in the Territory has been moved across the border where profitable operation is possible.

CONFIDENTIAL