TNAG-2622-FCO40-3813-Visits-by-Alastair-Goodlad--Minister-of-State-for-Foreign-an-1992 — Page 9

CONFIDENTIAL

FM HONG KONG

TO IMMEDIATE FCO

TELNO 2245

OF 040416Z SEPTEMBER 92

PART TWO OF TWO

PERSONAL FOR RICKETTS, HKD

CONFIDENTIAL

001412 MDHIAN 7812

VISIT BY MR GOODLAD 4-9 SEPTEMBER: MOOD OF THE COMMUNITY

12. HOWEVER, THE COMMUNITY REMAINS DISTURBED BY HONG KONG'S INABILITY TO SHAKE ITSELF FREE FROM AN INFLATION RATE THAT HOVERS CLOSE TO DOUBLE DIGITS. THE GOVERNMENT'S FAILURE TO CONTROL PRICE PRESSURES IS A CONTINUING SOURCE OF PUBLIC CRITICISM. CA HONG KONG ECONOMIC TIMES POLL PUBLISHED ON AUGUST 22 FOUND 30 PER CENT OF RESPONDENTS CRITICISED HKG ON THIS SCORE, COMPARED WITH ONLY 16 PER CENT IN MAY.) CNTA POLLS DEMONSTRATE THAT THROUGHOUT 1992 THE COMMUNITY HAS BEEN PARTICULARLY PERTURBED ABOUT THE HIGH COST OF PRIVATE HOUSING.

13. THE COMMUNITY'S FEARS ABOUT THE COST OF LIVING HAVE INTENSIFIED WITH THE SHARP FALL IN THE VALUE OF THE U.S. DOLLAR TO WHICH THE HONG KONG CURRENCY IS LINKED. ALTHOUGH IMPORT PRICES HAVE NOT BEEN THE PRIMARY CAUSE OF INFLATION, THE PUBLIC'S PERCEPTION IS THAT SIGNIFICANTLY HIGHER CONSUMER PRICES MAY WELL FOLLOW A WEAKER DOLLAR. A SLIGHT DECLINE IN THE UNEMPLOYMENT RATE (2.1 PER CENT FOR THE SECOND QUARTER) HAS ALSO CREATED THE EXPECTATION THAT THE TIGHT LABOUR MARKET WILL MAINTAIN AN INFLATIONARY ENVIRONMENT.

THE CHINESE BALANCE SHEET

14. THE PUBLIC HAS HAD SEVERAL REMINDERS THAT HONG KONG'S GROWING STAKE IN THE CHINESE ECONOMY IS FAR FROM RISK-FREE. EARLIER THIS MONTH, THE FLOTATION OF NEW SHARES ON THE SHENZHEN STOCK EXCHANGE PROVOKED AN ASTONISHING DEMAND FOR APPLICATION FORMS FOLLOWED BY WIDESPREAD DEMONSTRATIONS BY DISAPPOINTED WOULD-BE INVESTORS. HONG KONG WAS AMAZED BY THE CLUMSY PUBLIC SECURITY BUREAU RESPONSE TO THE ANGRY CROWDS AND THE EVEN CLUMSIER EFFORTS OF THE SHENZHEN AUTHORITIES TO PREVENT MEDIA COVERAGE. THIS SORT OF INCIDENT DOES NOTHING TO ALLAY THE DEEP- ROOTED HONG KONG CONVICTION THAT CHINA'S OFFICIALDOM IS CORRUPT,

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