TNAG-2749-FCO40-3964-Economic-situation-in-Hong-Kong-1993 — Page 161

1.dr/February/6.26

CONFIDENTIAL

leaders, followed by an 8 per cent drop in the Hang Seng in 2 days. Since then, the market has stabilised and recovered some of

the lost ground. And the Hong Kong dollar has remained

comfortably above its central parity against the US dollar.

5. Despite the uncertainties and the fluctuations in stock market sentiment, our trade commissioner in Hong Kong reports that business continues to boom and that there is general optimism

about future prospects. Nonetheless, it still seems prudent to

consider the

of possible implications

renewed tensions. The

scenario we have focused on with other Departments is one in which there is a serious break with China, whether on the constitutional proposals or on other issues, which does not lead to any military intervention but which causes a severe loss of confidence in Hong Kong, marked by sharp falls in the Hang Seng and property prices, and by pressure on the exchange rate link with the US dollar.

6.

This note looks at four main areas:

banks;

insurance companies;

other companies;

ECGD.

7.

At this

stage, what we say about the third category is very much by way of an interim report. DTI are doing further work, which we hope to discuss with them shortly and which will be the

basis of a further note.

CONFIDENTIAL

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