CONFIDENTIAL
(b) Civil Service Morale.
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THE ORIGINAL HAS BEEN CLOSED UNDER FOLEXEMPTION NO. ..27
HMG is responsible for good administration in Hong Kong up to 1997. If civil servants in general are not functioning properly because they are concerned about their pensions, then ultimately we could suffer.
(c) China Dimension.
(d) Assets to be handed over in 1997.
The reserves currently stands at over HK $90 billion. The free balance in the Exchange Fund is very roughly HK $80 billion. By 1997 the SAR Land Fund will have reached between HK $60-$80 billion. While we should of course aim to leave the SAR in a sound financial position, such huge balances, which the SARG would not obviously need, might be tempting to China. It would be far better to earmark some of these funds for a commitment which the SAR has agreed to inherit-and which we must certainly make sure does not
somehow rebound on HMG.
We have therefore suggested to Hong Kong that they should consider more carefully the possibility of establishing a fund to meet future pension liabilities in part. One possibility would be to aim at a fund which would be able to
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