TNAG-1762-FCO40-2516-Economic-situation-in-Hong-Kong-1988 — Page 39

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{EL MON)

CONFIDENTIAL

Foreign and Commonwealth Office

London SW1A 2AH

Dr A A McLean

JP

Deputy Secretary for Economic

Services

Government Secretariat

HONG KONG

Telephone 01-

270-2651

Your reference

Our reference

ROBAJE

MKC 090

Date

3 May 1988

10

Dear Alan,

REPORT ON CAPITAL INVESTMENT IN HONG KONG FOURTH QUARTER 1987

1.

Mrs Anson Chan enclosed a copy of this report in her letter of 8 March to Christopher Hum. We found the report particularly interesting, but our Economic Advisers raised one or two questions about it which I thought I should pass on to you.

The QIV slowdown

2.

The Economic Advisers have noted that all the figures referred to are quarterly year on year figures. There are no rates relating to the previous quarter, or levels of investment. Nor is there enough information to deduce these.

3. Year on year measures have their uses, but in a highly volatile economy such as Hong Kong they do not by themselves tell us very much. We cannot infer an assertion about developments between quarters from annual growth rates, even if measured quarterly. For example, the large "falls" in the last column of table 1 are cited as showing a slow down, whereas in fact they do not necessarily show this. The report partly recognises this in saying that a slow down might appear because of the high base of the previous year. But we are given no information on this base: high growth in 1986 IV tells us nothing since this has to be related to the base in 1985 IV, which in turn is not supplied. Similar remarks can be applied to table 2.

4.

But the

This is not to say there has been no slow down. figures as presented give us no obvious feel for what is happening. Some quarterly levels would help to make the picture clearer.

Prospects for 1988

5. The report suggests that retained capital imports are a good indicator of investment demands. For certain sub sectors these imports are related to demand for domestic exports. This provides the basis for the forecasting part of the report. The projection for domestic exports determines demand for investment in machinery

CONFIDENTIAL