TNAG-1640-FCO40-2287-Economic-situation-in-Hong-Kong-1987 — Page 106

CONFIDENTIAL

Some wreful pointă

090/1

5

from: S H Broadbent date: 3 April 1987

I

1. I promised a quick note on the main points of interest which arose in the course of my brief visit on Wednesday and yesterday. was given an excellent programme (FS, SES, SMA, Commissioner for Banking, Directors of Trade and Industry, Acting Governor and a couple of visits to upmarket factories), plus dinner with Dick Clift and a lunch with Alan McLean, the economist, and some of his colleagues. Unfortunately the already small number of appointments outside the HKG got squeezed out, and Dr Fong of the Bank of China, who was particularly interesting in the past, was away in Beijing.

2. Three current issues might be worth mentioning at the outset, in case you are not already aware of them. First, there was the prospect of a visit shortly from David Mulford, the US Assistant Secretary of the Treasury, at which the question of the HK$/US$ link would inevitably be raised. Piers Jacob was apprehensive about this; it would not be possible for Mulford to slip into HK without exciting speculation that the link was under discussion. Apparently Mulford was making a trip through the Far East, doubtless to put pressure on Taiwan and Korea to adjust their rates against the $. Robert Fell had heard that the possible inclusion of HK in such a trip had been at the suggestion of Sir G Littler. This sounds a little implausible to me, but I suppose it is possible that he might have judged that it would be helpful for HK to be able to offer its point of view to one of the key American officials. One or two people mentioned that they believed that Shultz was sympathetic, following his recent visit; but I was told that it was Shultz himself who had raised the issue.

3. I would have thought that it might be wise not to rely too heavily on the sensitivity and sympathy of US officials. The US is hitting out in all sorts of unhelpful directions at present, and this is not confined to the Congress. The Administration has frequently taken decisions which were both unhelpful and in which they have privately acknowledged were illogical, on the argument that it was necessary to demonstrate toughness in order to head of something worse.

4.

Another strand of this argument was the recent publication by the usually rational Institute of International Economics (IIE) in Washington of a study of Asian NICs and their exchange rate policies, urging appreciation of their exchange rates, including HKS. Apparently John Williamson, one of the authors, had accepted HKG criticism of a draft suggesting this, but had been unable to restrain his co-author, Fred Bergsten, from lumping HK in with the others; he had a bee in his bonnet.

CONFIDENTIAL