TNAG-2749-FCO40-3964-Economic-situation-in-Hong-Kong-1993 — Page 117

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037447 MDADAN 6421

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FM HONG KONG

TO DESKBY 07130OZ UKDEL TOKYO

TELNO 1

OF 07120OZ JULY 93

INFO DESKBY 08003OZ PEKING

INFO IMMEDIATE FCO, UKREP JLG HONG KONG, BTC HONG KONG

TOKYO: FOR SECRETARY OF STATE'S PARTY.

CHINESE ECONOMY: WILL HONG KONG FEEL THE HEAT QUERY.

SUMMARY.

1.

INITIAL SIGNS OF CONCERN IN HONG KONG AT THE POSSIBLE CONSEQUENCES OF CHINESE OVERHEATING, AND THE HARD LANDING THAT MAY FOLLOW. A DOWNWARD BLIP IN HONG KONG GDP GROWTH SEEMS POSSIBLE, BUT PROBABLY ACCOMPANIED BY LOWER INFLATION AND PROPERTY PRICES. NO CURRENT THREAT TO MONETARY STABILITY. GENERAL EXPECTATION THAT, AS ON PREVIOUS OCCASIONS, HONG KONG SHOULD BOUNCE BACK QUICKLY, THOUGH PERHAPS WITH MORE REALISTIC EXPECTATIONS ABOUT CHINA'S PROSPECTS.

DETAIL.

2.

CHINESE OVER HEATING HAS NOT YET HAD A MAJOR IMPACT ON

THE HONG KONG ECONOMY. BUT THERE ARE SIGNS OF CONCERN. GENERAL UNCERTAINTY ABOUT CHINA'S ECONOMIC PROPSECTS MAY BE BEGINNING TO RESTRAIN THE OPTIMISM OF HONG KONG INVESTORS THERE. THERE IS SCEPTICISM ABOUT THE ABILITY OF THE CENTRE TO PERSUADE THE PROVINCES MANY OF WHOSE OFFICIALS HAVE PERSONAL STAKES IN THE BOOM AND, AT LEAST IN GUANGDONG, SEEM UNPERTURBED BY OVERHEATING TO COMPLY WITH EXPECTED RETRENCHMENT MEASURES (SUCH AS THE CALLING IN OF SPECULATIVE LOANS, RECENTLY PREDICATED BY THE HONG KONG PRESS). THERE IS ALSO SCEPTICISM AS TO WHETHER CHINESE LEADERS HAVE THE POLITICAL WILL TO SEE THROUGH UNPOPULAR ECONOMIC MEASURES. UNDERLYING THIS ARE DEEPER WORRIES, FUELLED BY THE RECENT RURAL UNREST, ABOUT HONG KONG'S VULNERABILITY TO ANOTHER OUTBREAK OF SOCIAL DISORDER IN CHINA. JOURNALISTS RETURNING FROM CHINA SPEAK OF MORE ALARMING ANCEDOTAL EVIDENCE OF UNREST THAN THEY HAVE SO FAR PRINTED. MOREOVER, IN A RECENT INTERNAL HONG KONG BANK ASSESSMENT (WHICH WE HAVE BEEN GIVEN IN CONFIDENCE) IT IS SUGGESTED THAT DURING CHINA'S RECENT DIVERSIFICATION OF FUND-RAISING CHANNELS MANY INDIVIDUALS HAVE REPORTEDLY BEEN LURED OR OBLIGED INTO FINANCING

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