TNAG-2749-FCO40-3964-Economic-situation-in-Hong-Kong-1993 — Page 130

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FROM:

SH Broadbent

DATE: 23 June 1992

cc: Mr Hum

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MEETING WITH FINANCIAL SECRETARY: 21 JUNE

1.

I gave Hamish Macleod lunch yesterday. He was in a sunnier mood than I had seen him for a couple of years, much tickled that I had noticed his propaganda coup of selling his official number plate for HK$9.5m.

2.

The Hong Kong economy continued to do well, with the current year if anything slightly above forecast, and the public finances in a healthy state. His budget had been well received, although he remained a bit cross with the UDHK for abstaining after he had given them virtually everything they wanted. The medium term projections continued to be based on growth in productive potential of 5% pa, which some people thought an underestimate. It was better that all the surprises should be favourable ones. However, it was becoming a problem that because budget surpluses tended to be well above forecast people now expected this as a matter of course. It should not be forgotten that there were downside risks as If growth faltered, for instance because of events in China, the surplus would be wiped out quite quickly.

3.

His main worry at present was the state of the residential property market, where there was an ever-present threat of a speculative boom and bust. The risks to the banking system had been much reduced by the imposition of the 70% lending limit, which the larger banks, at least, respected. However, property companies (which meant virtually all companies in Hong Kong) were not so inhibited, and a downturn could have pervasive effects. Meanwhile, money was flooding in from all directions, including private investors from China who were putting up huge sums to buy flats as an investment. The commercial property market was in a healthy state, with demand and supply growing steadily and more or less in balance.

4.

The Chinese economy remained the main motor of growth in Hong Kong, and HKG put quite a lot of effort into monitoring it, drawing on the experience of people with business interests there. The main concern was, of course, overheating. The Chinese authorities had not yet shown much sign of knowing what to do about it, having taken some relatively modest fiscal and monetary measures. Moreover, it was questionable whether the levers they pulled were connected to anything. Some of the officials responsible for

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