TNAG-1621-FCO40-2235-Relations-between-Hong-Kong-and-China-1987 — Page 57

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Kong is unlikely to be significantly affected, as experience in recent years suggests that the funds available for investment locally are not in short supply.

10.

In respect of Hong Kong's economic relations

with the Pearl River Delta region, one plausible development scenario in the longer term is that the Delta

region would concentrate on agricultural and industrial development while Hong Kong would specialise in services. Although the territorial frontier between Hong Kong and

southern China will remain and the labour markets in the

two places will continue to be segregated, the boundaries

are likely to become increasingly porous for economic flows and cooperation. Complementary developments along with some degree of specialisation will be beneficial to

both economies in overall terms. But this development scenario could lead to certain sectoral problems,

particularly for Hong Kong's manufacturing industries in terms of business and job losses, unless the adjustment process is gradual.

11.

At a city-to-city level, Hong Kong is likely to

become a strong competitor of Guangzhou in the provision

of business, financial and communications services to the

towns and counties in the Pearl River Delta region. In

the longer term, the emergence of Hong Kong as the financial/commercial capital of the Delta region and as the main centre where foreign capital can be raised for China's economic development seems possible.

12.

With further increases in the economic links

between Hong Kong and the Pearl River Delta region, and given that exchange controls on the Renminbi are not

likely to be abandoned in the foreseeable future, the influence of the Hong Kong dollar in the Delta region is

expected to continue and may even strengthen.

CONFIDENTIAL **