TNAG-2814-FCO40-4060-Future-of-Hong-Kong-International-Rights-and-Obligations-(IR-1993 — Page 11

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meant giving a greater role to fiscal policy, which he felt should be neutral,

and not add to inflationary pressure. In answer to a question from Tabata

about the potential impact of any future tightening of policy in China, he

said that the Fund had recently concluded that China is approaching an

overheated situation, where policy would need tightening. In the short run

this might have an impact on Hong Kong, but in the long run the prospects for

both countries would be improved by stable anti inflation policy in China. But

even with a tightening of credit policy in China, growth in China would still

be 8-10 percent in the next few years.

NON-LEAD SPEAKERS

6.

Zoccali (Argentina) stressed the importance for HK's success of the non

intervention, pro business, free trade policies. Inflation was disturbing, and

reflected structural changes as well as excess demand pressures, which were

starting in the service sector. He supported the exchange link to the dollar,

but agreed with others that this placed much greater importance on maintaining

prudent fiscal policy. He hoped that the airport projects could be managed

without overheating the economy. In this context there might be scope for

greater taxation. Finally, he said he was concerned at the threat to Hong

Kong's economy that came from questions over China's MFN status, the delay in

concluding the Uruguay Round, and unfair anti-dumping accusations.

7. Solheim (Nordics) said that while he could see a theoretical case for a

more flexible exchange rate, ne fully supported the authorities policy, which

maintained stability in very exceptional circumstances. Wage pressure in the

services and non traded sectors was fueling inflation. But prices of traded

goods were lower, and so competitiveness was not a problem. He agreed that HK

certainly needed the new airport, but he hoped that fiscal policy would still

be used to constrain domestic demand growth, and certainly not act as a

stimulus.

8. Kaeser (Switzerland) welcomed the good performance. He said that while

the exchange rate link to the dollar had served well, he did not think that a

revaluation would undermine confidence. The markets would see it as a strong

development. Nonetheless if revaluation was not on the agenda, and the HK

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