TNAG-2619-FCO40-3810-Official-visits-from-the-UK-to-Hong-Kong-1992 — Page 148

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 economic zones; my Own subsequent

private visit to China suggested that, although a slight exaggeration, it was a permissible one.

12.

The key point about the China link seemed to me that,

because of its location, HK has the inside track and is

remorselessly exploiting its role as China's economic window to

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.

no

14. If economic growth continues at around 5% - and there is

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. It was not clear to me what contingency planning had been done to offset the cost implications of medium term spending commitments.

4