TNAG-1873-FCO40-2661-Relations-between-Hong-Kong-and-China-1989 — Page 121

CONFIDENTIAL Z

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(12) Despite the risks that Hong Kong will import some

inflation from China, unless the problem of inflation

in China develops into widespread social unrest Hong Kong is likely to continue to benefit from China's

rapid economic growth and its need to import more to satisfy its domestic demand. These factors have been at least partly responsible for the very rapid growth of Hong Kong's exports to China in 1988

(paragraph 48). But the prospects in 1989 are less buoyant. Due to an acute shortage of energy and raw

materials as well as a possible contraction in the

overall supply of credit, the pace of economic growth in China may slow down markedly in 1989, perhaps to

4% or 5%. If so, Hong Kong's exports to China may enter a period of consolidation next year.

This may

be no bad thing given that Hong Kong is presently suffering from the inflationary consequences of excess demand for its products (paragraph 49).

CONFIDENTIAL

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