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11, The most reasonable broad conclusion would seem to be that as compared with 1966, and on the assumptions stated in paragraph 3, the net balance of payments effects of the loss of Hong Kong should not be too difficult to digest. The same is probably true of income effects, even taking account of some increase in prices arising from the loss of supplies
of low cost Hong Kong manufactures.
II.
Effects on the United Kingdom economy arising from "consequential" changes or in economic relations with China
12.
In this section, an attempt is made to assess firstly how far there would be "natural" changes in the level of our trade with China, if it were enlarged to include Hong Kong and, secondly, how far policy decisions arising from the loss of Hong Kong (and whether by United Kingdom or China) might tend to invalidate the assumptions in paragraph 3 above or
otherwise to have effects on the United Kingdom ecomony.
(a) "Natural consequences" for Anglo-Chinese trade
13. Assuming that the present United Kingdom import regime for goods of Chinese origin (such imports totalled £34 million in 1966) applies unchanged to the enlarged China, there is no reason to expect any significant change in the level of United Kingdom imports, for imports from China of the manufactured goods of types which comprise most of Hong Kong's output, are subject to quote limits. The essential question under this head, therefore, is whether and how far incorporation of Hong Kong would affect China's capacity to import and in particular to import from the United Kingdom (United Kingdom exports to China are on a steeply rising trend and totalled nearly $32 million in 1966).
14. China's own figures indicate that in 1966 her net foreign exchange earnings and receipts from Hong Kong totalled somewhat less than £240 million, or over a third of her total earnings of foreign exchange. This includes about £30 million of remittances from overseas Chinese to China via Hong Kong. As these last would not necessarily cease with the incorporation of Hong Kong into China, the total loss of earnings might be something over £200 million. Against this has to be set such of Hong Kong's earnings and receipts from overseas as might continue after she had been incorporated into China.
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