TNAG-2472-FCO40-3599-Confidential-talks-between-the-UK-and-China-regarding-financ-1992 — Page 53

Yes

telecoms

traffic

with China; very rapid growth rate within China itself; a massive expansion in container traffic passing through HK. The talk was of a new Hong Kong springing up immediately over the border in the special

zones; my own subsequent to China suggested that, although a slight

private visit

economic

exaggeration, it was a permissible one.

seemed to me that,

inside track and is

economic window to

12. The key point about the China link

because of its location, HK has the remorselessly exploiting its role as China's the world. I was repeatedly struck by the fact that, although

no-one forgets about the political risk, the China link is basically seen in HK as an opportunity, not a problem (whereas in the UK we still focus much more on the political problem). The reality seems to be that a Cantonese economic region, in which HK

and Southern China are increasingly interdependent, is being created; and that region is gradually spreading its way northwards into the rest of China. The longer this process continues - and

as far as I could see economic reform is still going full steam ahead within China - the greater the economic costs

to China of any political move that destabilised Hong Kong.

HK Fiscal Position and the PADS Project

13. The underlying pressures on the fiscal position do seem very considerable. I had not appreciated the extent of social spending in HK, for example very heavily subsidised public housing and ready availability of free health care.

The medium term

expenditure plans build in continuing rapid real growth in provision in these areas.

-

and there is

no

14. If economic growth continues at around 5% major upset on infrastructure spending (see below) then the public sector books probably can be made to add up on the basis presented in this year's budget. But were growth to tail off there could be substantial problems. contingency planning had been done to of medium term spending commitments.

It was not clear to me what

offset the cost implications

4-