TNAG-2466-FCO40-3590-Economic-situation-in-Hong-Kong-1992 — Page 113

Mr Burns

CONTEUZMANITATE

FROM S H Broadbent

DATE: 20 February 1992

cc: Sir J Coles

Mr Ricketts, HKD

HONG KONG FINANCES

1.

Economic and budgetary outlook brighter.

ACP apparently

Key role

on track, but PAA financial strategy still unclear. of export credit and Chinese "guarantee". Other financial issues to be resolved with China. Arrangements for avoiding surprises. HMT technical assistance agreed. Airport terminal

Fog over LFT.

contract decided.

2.

I spent a useful day in Hong Kong on Tuesday 18 February, largely with HKG officials (Hamish Macleod, Anson Chan,

-

K Y Yeung with Stephen Selby, Richard Allen (PAA) and Roger Moss (MTRC)). I also saw Peter Heap, who cut me in on a lunch given by Martin Barrow (Jardines) for David Hall (PEP, DTI) and Sir Gordon Manzie of the AJC Consortium a poignant reminder, if any were needed, of HMG's two hats. I kept off the tendering process when talking to officials, since the main object was, as with four previous such encounters in the last 6 months, to get closer to them and their problems. I did learn that the airport design contract had been decided (Foster et al) and would be announced (probably on 28 February) once the relevant committees had been consulted.

Economic and Budgetary Outlook

But

He

3. Macleod presents his first Budget on 4 March, and was up beat about prospects. The economy was picking up - a little faster than expected - while inflation had fallen from 14 to 10%, taking some of the heat out of it as political issue. thought it would continue to fall this year, with some blips in the chosen measure (CPI (A)). He would be forecasting real growth of 5% this year, coincidentally the medium term assumption in the budgetary projections we saw last year.

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".

4. As a result, concern over the government's financial position has receded somewhat. In 1991/2 there is likely to be a surplus of HK$1.3 billions HK$15.3 billions above expectations mainly buoyant revenues (including HK$2 billions for higher land sales) and a little slippage in capital projects expenditure. Macleod will budget for a HK$7.9 billion surplus this year, which will require some modest tax increases, amounting to HK$5.5 billions. He thought these would cause no great difficulty. Wait for the complaints from business. I gather a 1% rise in profits tax is included.

:

CONFIDENTIAL

!

desión.