TNAG-2622-FCO40-3813-Visits-by-Alastair-Goodlad--Minister-of-State-for-Foreign-an-1992 — Page 20

ΤΙΑ

CONFIDENTIAL

FM HONG KONG

TO IMMEDIATE FCO

TELNO 2196

OF 261106Z AUGUST 92

CONFIDENTIAL

109

155411

MDHIAN 6696

25/3

TOP COPY Q DIST?

MIPT: VISIT BY MR GOODLAD: BRIEFING ON THE ECONOMY

(108)

1. THIS IS AN UPDATE OF MY TELNO 1295 AND SHOULD BE READ IN CONJUNCTION WITH THAT.

2. THE ECONOMY CONTINUES TO GROW STEADILY, WITH GDP GROWING AT 4.7 PERCENT IN THE FIRST QUARTER OF 1992. GROWTH RATE IN THE SECOND QUARTER IS EXPECTED TO BE SIMILAR. UNEMPLOYMENT AT ABOUT 2 PERCENT MEANS THAT HONG KONG CONTINUES TO ENJOY VIRTUALLY FULL EMPLOYMENT.

3. VALUE OF RE-EXPORTS GREW BY 33 PERCENT IN FIRST HALF OF 1992 OVER THE SAME PERIOD IN 1991 AND CONTINUES TO PROVIDE THE MAIN IMPETUS FOR GROWTH. CHINA CONTINUES TO BE THE LARGEST MARKET AND SOURCE FOR HONG KONG'S RE-EXPORTS, MORE THAN 85 PERCENT OF WHICH ORIGINATED FROM OR WERE DESTINED FOR CHINA. THIS CONTINUES TO REFLECT THE LARGE AMOUNT OF INVESTMENT IN CHINA FROM HONG KONG BUSINESSMEN INVESTING IN MANUFACTURING IN GUANGDONG PROVINCE. ABOUT 80 PERCENT OF FOREIGN INVESTMENT IN GUANGDONG COMES FROM HONG KONG.

4. CONSUMER SPENDING HAS CONTINUED TO INCREASE, AS HAVE RETAINED IMPORTS OF CONSUMER GOODS. ALSO THERE HAS BEEN SUBSTANTIAL GROWTH IN RETAINED IMPORTS OF CAPITAL GOODS, INCLUDING OFFICE EQUIPMENT AND INDUSTRIAL MACHINERY FOR MANUFACTURING USE.

5. INFLATION, MEASURED BY THE CPI(A), SLOWED TO 10.1 PERCENT IN THE FIRST QUARTER AND TO 9 PERCENT IN THE SECOND QUARTER. THIS IS A SUBSTANTIAL DROP FROM 13.9 PERCENT IN APRIL 1991. THIS STABILISING TREND HAS CONTINUED INTO JULY WITH THE CPI(A) AT 8.8 PERCENT.

6. OF PARTICULAR CONCERN HAS BEEN THE SUBSTANTIAL INCREASE IN THE PRICES OF HONG KONG'S RESIDENTIAL FLATS. PRICES OF SOME OF THE FLATS HAVE DOUBLED SINCE JANUARY 1991. THIS IS THOUGHT TO BE A RESULT OF RELATIVELY HIGH INFLATION COMBINED WITH LOW INTEREST RATES. THIS SITUATION HAS ENCOURAGED PEOPLE TO INVEST IN

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