SECRET UK EYES A LOCSEN
1.
The health and openness of the Chinese economy also has a bearing
on Hong Kong due to the importance of entrepot activities and
bilateral trade. Although reform is now deeply embedded in many
regions and sectors of the economy, economic policy, particularly the degree of economic authority granted to the coastal provinces, will
be influenced by the outcome of the power struggle in Beijing, which looks set to intensify in the 1990s. However, it should be noted that even in 1989, Hong Kong/China trade grew by 20% despite the disturbances and an austerity drive.
8.
Hong Kong is vulnerable to emigration and the herd instinct of
investors. Fears of Chinese interference could seriously damage Hong
Kong's reputation as a safe and competitive financial centre. As 1997
approaches, the risk of an irrational and collective loss of
confidence in Hong
in Hong Kong is likely to increase. Some important
businessmen will stay and seek to keep in favour with the Chinese.
However, uncertainty about the future will encourage other investors
to maintain their assets in liquid form, which will affect investment
levels, and reduce competitiveness. In the last 3 years, 30% of listed companies have moved their headquarters out of Hong Kong.
Emigration is also increasing. Over 60,000 left in 1990 compared to
42,000 during the previous year. A quarter were highly skilled
professionals. Their departure also erodes competitiveness.
9. Key indicators when assessing economic confidence will include
per capita real income, the rate of inflation, level of unemployment,
Hang Seng index, the rate of exchange for the $HK against the $US,
movements of capital, emigration figures and the number of tourists
visiting Hong Kong. Although Hong Kong's economy has successfully ridden out previous periods of political uncertainty, the sensitivity and proximity of the handover mean that it is more a hostage to any
loss of political confidence than hitherto.
How Internal Unrest May Develop
A-3
LOCSEN
UK EYES A
SECRET
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