C
CONFIDENTIAL #
27
(d) General economic stability of Hong Kong
47.
If increased inflation leads to social unrest and repression (the worst case outlined in para 38), the impact on Hong Kong could be serious. If an authoritarian and conservative policy stance were adopted by the Chinese authorities it would almost certainly undermine business confidence in Hong Kong because of doubts it would cast on the workability of the "one country two systems" approach. There is practically nothing that Hong Kong could do to forestall the occurrence of such a policy mix or to insulate itself from its effects. Luckily it represents only the worst case scenario.
Conclusion
48.
There
China's economic reforms have entered a critical stage and its economy is now at a cross-roads. Any major mistakes made by the Chinese leaders could upset all or many of the gains achieved in the past ten years. is no one clear solution. Given that economic growth has been rapid for a long period of time and the substantial increases in supply which have been achieved have raised the general living standards of most Chinese, there is likely to be a reluctance to abandon the rapid growth policy. In the longer term further increases in supply can hopefully meet the demand in the economy and hence eliminate the inflationary gap, especially if steps were taken to slow down the growth rate of that demand. However, with the current high rate of inflation which is still accelerating, there may not be time to let this happen. In these circumstances it is probably very tempting for a government with a tendency, based on experience, to rely on administrative controls to back-track on some of the price reform measures and/or to
CONFIDENTIAL #
No comments yet.
Private notes are available after approval.