TNAG-1640-FCO40-2287-Economic-situation-in-Hong-Kong-1987 — Page 92

CONFIDENTIAL

IMPLICATIONS FOR UK INTERESTS

Internal Stability

1. The internal debate about the pace and nature of

economic reform has closely reflected the political

dispute between reformers and conservatives, particularly over the question of decentralisation of decision making. The problems that have resulted from the introduction of

reforms has weakened the position of the reformist

leadership. Resentment over urban price increases

fuelled the student demonstrations this winter which were

catalytic in prompting the resignation of Hu Yaobang, and

the decision to delay the programme of price reform

preceded the anti-bourgeois liberalisation campaign which

followed his resignation. Nevertheless, it would probably be wrong to give too much weight to economic problems as a key factor in the power struggle. Rather both sides have exploited the successes and failures to strengthen their own position. There also appears to be a consensus within the leadership, embracing the most

conservative elements, that the economic reform programme

should continue: whatever the problems with current

policy, there are no advocates for a return to the more

centralised autarkic system of the cultural revolution

period. In particular, the failure of the Special

Economic Zones to fulfil expectations is unlikely to

reduce China's interest in maintaining the stability and

economic usefulness of Hong Kong rather the reverse.

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FCLABK

CONFIDENTIAL