TNAG-2386-FCO40-3468-Asia-travel-budget-for-1991-1991 — Page 22

CONFIDENTIAL

3.

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To start with a truism, the visit reminded me of the importance of seeing Hong Kong at first hand. Not least because of the pace of change I was struck by the extent to which Hong Kong's economic success over the last decade

has been translated into infrastructure improvements of

benefit to all: the MTR, new roads and tunnels, the second

harbour crossing, universities etc. But also because of the

dichotomy between the economic and political worlds. The political class not surprisingly is absorbed by the issues of democracy and confidence. Meanwhile the economy is

surging and the manufacturers and traders are taking

practical measures to reinsure against 1997 through the explosive development of Guangdong Province. The two worlds rarely intersect (CFA is an exception) and the international

press concentrates on the politics. Going there gave me a

more rounded view of the whole.

The Economy and the Airport

4. Growth is picking up well (forecast up to 5% for 1991).

But business is worried about inflation. Mr Heap organised

an interesting discussion around his dinner table among senior businessmen and bankers about the causes of and

remedies for the current double-digit inflation. Most economists believe that Hong Kong's inflation is wage-led, and therefore blame labour shortages and the government's failure to introduce a large-scale importation of labour

scheme. Edward Chen made a good speech in LegCo on these lines. David Gledhill and other businessmen agree with this

line. But the Trade Unions and some of the UDHK are

opposed.

5. Leo Goodstadt suggested that another way of easing the

pressure on Hong Kong's labour force would be to agree with China on the lifting of exchange controls in Guangdong

ALKABF/2

CONFIDENTIAL