TNAG-1621-FCO40-2235-Relations-between-Hong-Kong-and-China-1987 — Page 53

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23.

24.

wage differentials; those employed outside the services

sector could lose out. Although this was already evident

to a small extent, there would be socio-economic pressures as the gap opened up.

DPA felt that the paper represented an important study on a key question. He pointed out not only that the paper's assumptions depended on implementation of the Joint

Declaration, but that successful implementation of the Joint Declaration also depended to some extent on the

economic relations between Hong Kong and China. He

suggested that the data and the judgements in the paper

should be periodically updated. It would also be useful to assess the implications for Hong Kong of various

scenarios, based on the varying rate and scale of China's

economic reforms; and to include views on overseas

perceptions of Hong Kong. DS(ES)2 pointed to the references to COCOM in the paper. SLW enquired whether,

in the GATT context, the finishing of Chinese goods in

Hong Kong had any impact. STI noted that difficulties

were already being faced, such as the US desire to change

rules related to knitwear, but that Hong Kong was

upgrading machinery to meet such challenges.

DS(ES)2 pointed out that overall Hong Kong was in some

ways vulnerable to China: she no longer offered "friendly"

prices to Hong Kong. While it was not a national policy, local concerns might push up prices for Hong Kong as a means of meeting targets. CS queried the judgement in

para 60 of the paper that China might invest less in Hong Kong after 1997. DS(ES)2 said that this was possible if it was assumed that there had been a State policy favouring investment in Hong Kong as a means of boosting

confidence here. DPA felt that there might have been such

an element in Chinese thinking, but inclined to the view

that Chinese investment was now based on commercial

grounds.

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