TNAG-2619-FCO40-3810-Official-visits-from-the-UK-to-Hong-Kong-1992 — Page 143

HRD 026/12

Mr Burns

PS/Mr Goodlad

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FROM: P F Ricketts, HKD DATE: 13 May 1992

cc: PS/Mr Patten

Mr Broadbent,

Economic Advisers Mr Cox, HKD

TREASURY IMPRESSIONS OF HONG KONG

1.

The report from Mr Paul Gray of HM Treasury and the comments on it by Mr Broadbent are well worth reading. The Treasury tend to adopt a rather nannying attitude towards the Hong Kong Government's managing of its own economic and financial affairs. The Treasury's formal standing is in fact limited. They have a legitimate interest in issues which might create financial burdens or contingent liabilities for HMG. As 1997 approaches, their anxiety to ensure that the SARG inherits the liabilities as well as the assets will grow. But they have not felt inhibited from criticising Hong Kong's day-to-day economic management, and from time to time second-guessing decisions which are strictly within Hong Kong's autonomy.

2. The Hong Kong Government invited Mr Gray to pay a visit, with the aim of educating a key Treasury official in the realities of Hong Kong. This seems to have been well worthwhile. Mr Gray's report is generally favourable, although the tendency of Treasury to know best shows through in some of his comments, particularly on inflation. Mr Broadbent (who has studied this and other aspects of the Hong Kong economy in more detail than the Treasury) is less worried about inflation, which he sees as largely a symptom of the stresses on the Hong Kong economy as a result of its rapid growth, and transformation from a manufacturing to a service economy. It would clearly be wrong for Hong Kong to be complacent about inflation (I do not believe that they are). But it is useful that Mr Gray has returned with a more rounded view of the Hong Kong economy. I understand that his visit also went down well with the Hong Kong Government people concerned. This is useful, and should help to dispel some of the previous suspicions. And HKG are now more ready to receive advice in areas where we have something constructive to offer. One example was the recent visit by Bank of England officials to look at the adequacy of HKG's management of financial and monetary issues. Another is a visit which Mr Broadbent is arranging of a recently retired senior Treasury official to advise the Hong Kong Government on budget planning and control.

PF Ricketts

BENAJK

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