TNAG-1762-FCO40-2516-Economic-situation-in-Hong-Kong-1988 — Page 40

CONFIDENTIAL

ن اختر نكت مصر

for manufacturing in 1988.

6. There is much plausibility to this story, but it is not clear that it justifies the very strong statement that demand for "this category of investment will slow down further in 1988". Even if exports slacken the labour market will remain tight and interest rates are not likely to rise markedly. Thus the pressure to invest in labour saving equipment will remain strong despite slackening export demand. In such conditions we should not expect a simple relationship between investment demand and export growth.

7. More importantly, it is not at all clear whether these general observations can justify the predictions for 1988 where investment in "plant and machinery" is expected to grow at 3.9% compared to 27.3% in 1987. Using capital imports as a guide for quarterly investment trends, rough calculations suggest that such an annual growth rate will be achieved, even if the HK economy stagnates at the levels of the end of 1987.

Yours sincerely, Robert

R C L Footman

Hong Kong Department

CONFIDENTIAL