TNAG-1839-FCO40-2614-House-of-Commons-Select-Committee-on-Foreign-Affairs-enquiry-1989 — Page 50

CODE 18-77

Mr Morris,

HKD

HKB 011/3

Reference...

MA 89

21/2

FAC MEMORANDUM: HONG KONG ECONOMY

I suggest the following draft paragraphs on the Hong Kong Economy:

1.

2.

'The Hong Kong economy has been booming for the past three years.

While the immediate cause for this recovery from the low point of negative real growth in 1985 was the gain in competitiveness as the HK$ followed the depreciation of the US$, the effect of the Declaration has been positive. Investors have been able to plan ahead with certainty, and capital formation has contributed to the boom. The future role of Hong Kong as a capitalist enclave within China is an attraction for foreign investors. Crucially, the boom could not have continued without access to the vast and untapped resources, especially labour, of neighbouring Guangdong province."

I

As

While trying to be upbeat,my draft is more circumspect about the effects of the Declaration than your minute and attachment suggested. From the figures I have available it is quite difficult to infer an upsurge in confidence; as note the depreciating currency was much more important. I observed in our earlier conversation the bottom of the recession was in 1985, rather inconveniently after the Declaration. I do not have detailed figures to confirm net

inward investment trendy [ie the balance against outflows from Hong Kong]; nor a massive amount of investment from PRC, as suggested by your attachment.

21 February 1989

MA 3AAJ

نه

M Wright

Economic Advisers WH426D

270-2728