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INTRODUCTION
DRAFT
HK1
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CHINA'S ECONOMIC RELATIONSHIP WITH HONG KONE ORIGINAL HAS BEEN RETAINED
IN THE DEPARTMENT UNDER SECTION 3 (4) OF THE PUBLIC RECORDS ACT 1958
1. China's economic relationship with Hong Kong can be divided into 2 areas -
China's trade with Hong Kong and, within Hong Kong itself, communist participation
in the economic life of the colony. Trade can itself be divided into direct 2-way
trade and entrepot trade whereby either Chinese goods are exported through Hong Kong
to third countries or third country goods are imported through Hong Kong for China.
This paper describes the recent growth and character of China's trade,
commercial
and financial operations in Hong Kong and their significance for both territories.
2. China's trade with Hong Kong has, over the past 10 years, usually accounted
for 8-10% of China's total trade and Hong Kong has normally ranked as China's
second most important market after Japan. The dominant feature is the flow of goods
from China to Hong Kong. This accounted for 98% of total Sino-Hong Kong trade in 1976,
some 16% of all Hong Kong's retained imports and 27% of her reexports. It is not
known what proportion of Hong Kong's GDP is contributed by Chinese economic activity
in Hong Kong. The size of China's important "invisible" earnings in Hong Kong
composed of commercial, shipping and financial profits is difficult to estimate but
is broadly estimated at $600 - $700 million for 1976.
CHINA'S FOREIGN EXCHANGE EARNINGS
3.
Calculation of Earnings. The size of China's foreign exchange earnings from
Hong Kong is difficult to calculate because although the gain from trade is easily
identified the contribution of "invisibles" ie remittances of overseas Chinese both
in Hong Kong and elsewhere to friends and relatives on the mainland, communist
business and banking profits, and travel and tourism through Hong Kong to China, is
less easily discovered. One method is to base calculations on the amount of
foreign exchange purchased for Hong Kong dollars in Hong Kong by the 13 communist
banks; this figure shows invisible earnings varying from $617 million in 1974 to
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