CONFIDENTIAL
rising by some 2% per annum, this increase in the gross domestic product was equivalent to about 7% a year per head. For 1971, the per capita gross domestic product was estimated at more than HK$ 5,000 (US$ 1,000).
Capital Investment and Wages
9.
Although there was a high rate of capital investment throughout the 1960's, the ratio of gross domestic fixed capital formation to the gross domestic product remained relatively low at around 20% (much the same as today). This reflected the greater attractiveness of utilising the increasing supply of labour. During the 1950's money wage rates had shown little tendency to rise, but with full-employment being achieved by about 1960 and with overseas demand for Hong Kong's products continuing to rise rapidly, money wage rates, even in the almost total absence of effective collective bargaining procedures, also increased markedly by an average of around 15% a year. (And this was reinforced by significant improvements during the decade in Hong Kong's terms of trade - the relationship between its export prices on the one hand and its import prices on the other.) As a result, Hong Kong's wage rates have for some time now been the second highest in the region after Japan's. But, taking into account the relatively low proportion of the gross domestic product represented by fixed investment, it is unlikely that wages increased quite as rapidly as profits.
Consumer Prices
10. The increase in consumer prices was relatively modest throughout the 1960's, averaging 3% a year. As a result, the increase in wage rates was rapid in real terms as well. Most of Hong Kong's inflation is imported: other than during the property boom around 1965, when the building and construction industry became over-heated, and during the stock market boom in 1973, when the banks considerably increased their lending against shares, there has been very little internally generated inflation in Hong Kong and the explanation for this lies partly in the high degree of responsiveness of the wage rate adjustment process to changes in the intensity of overseas demand.
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/Money Supply
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