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MDHIAN 4819
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FM BTC HONG KONG
TO DESKBY 10093OZ FCO TELNO 211
OF 100536Z JULY 91
HKD 020/1
RECEIVEY
154
14 JUL 1991
PICL
PA
TOP COPY Q DIST?
YOUR TELEGRAM NO. 143: LORD CAITHNESS' VISIT TO HONG KONG: BRIEFING: BRITISH BUSINESS PROSPECTS AND KEY POINTS.
ECONOMIC BACKDROP
1. OVERALL GROWTH OF THE HONG KONG ECONOMY WAS MODEST IN 1989 AND 1990 (RESPECTIVELY 2.3 PER CENT AND 2.4 PER CENT AS AGAINST 7.9
PER CENT IN 1988 AND EVEN HIGHER GROWTH RATES IN PRECEDING YEARS). DEPRESSED MARKET CONDITIONS IN NORTH AMERICA PARTICULARLY BUT ALSO IN EUROPE HAVE BEEN CONTRIBUTING FACTORS, COUPLED MOST RECENTLY WITH DISTORTIONS CAUSED BY DEVELOPMENTS IN THE MIDDLE
EAST. BUT THE ECONOMY IS BEGINNING TO PICK UP. GDP GROWTH IN 1991 WAS ESTIMATED AT 3.5 PER CENT BEFORE AGREEMENT WAS REACHED ON THE PORT AND AIRPORT DEVELOPMENT STRATEGY (PADS). IT COULD WELL NOW EXCEED THAT PROJECTED GROWTH RATE. BUT MFN REMAINS A WORRY. WITHDRAWAL COULD HAVE A SERIOUS DEFLATIONARY EFFECT ON HONG KONG'S ECONOMY. INFLATION (CURRENTLY 13 PER CENT) REMAINS A CONCERN ALTHOUGH THE ECONOMY HAS TO SOME EXTENT BEEN CUSHIONED FROM DAMAGE THROUGH THE AVAILABILITY OF LOW-COST OUTWARD PROCESSING FACILITIES IN SOUTH CHINA. THE GOVERNMENT IS HOWEVER CONFIDENT THAT MEASURES INTRODUCED IN THE LAST BUDGET WILL WORK THROUGH TO A SUBSTANTIAL REDUCTION IN INFLATION BY YEAR-END CAND A CORRESPONDING SLOWING DOWN OF WAGE GROWTH).
UK-HONG KONG TRADE
2. WITHIN THE PACIFIC RIM HONG KONG IS THE MARKET WHERE BRITISH FIRMS ARE MOST EVIDENT. THE BALANCE OF VISIBLE TRADE REMAINS IN HONG KONG'S FAVOUR (IN 1990, IMPORTS FROM HONG KONG WERE VALUED AT GBP 1,972 MILLION WHILE OUR EXPORTS TO HONG KONG WERE GBP 1,238 MILLION). BUT THE GAP IS NARROWING. UK EXPORTS TO HONG KONG IN 1990 WERE AT A RECORD LEVEL, RECORDING AN INCREASE OF 11.4 PER CENT OVER 1989. EXPORTS IN THE FIRST 5 MONTHS OF THIS YEAR AT GBP 534 MILLION SHOW A FURTHER IMPROVEMENT AND ARE UP BY
10.6 PER CENT ON THE SAME PERIOD IN 1990.
3. THAT SAID OUR MARKET SHARE OF HONG KONG'S TOTAL IMPORTS
REMAINS DISAPPOINTINGLY LOW AT ABOUT 2.2 PER CENT. MANY BRITISH EXPORTERS HAVE LOST HEART OR INTEREST OVER THE YEARS MAINLY
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