UK CONFIDENTIAL
CHINA'S RELATIONSHIP WITH HONG KONG
12. Hong Kong is China's chief source of foreign exchange providing over one- third of total. China relies on this convertible currency to partially offset the large trade deficits incurred with the West. Hong Kong is China's second largest market after Japan and is an expanding market for China's agricultural produce and other goods worth $1253 million in 1977 ($1734 million if re-exports are included). Western advertising techniques are being used increasingly by the communist Chinese to market their goods, and the improvements in the Canton-Hong Kong rail link should also increase China's market penetration. China's petroleum product sales are also growing and accounted for
China now 17% of Hong Kong's total imports of petroleum products in 1977. retails its own petroleum from Communist-owned filling stations in the colony and is also developing its oil storage facilities.
13. Apart from direct trade China also gains foreign exchange from using Hong Kong as a re-export outlet and from invisible earnings. Nearly 30% of Chinese goods entering the colony are for re-export and, in 1977, were valued at $481m. China probably finds the shipping and financial facilities of consider- able advantage in her developing South-East Asia trade. 'Invisible' earnings are made up of personal remittances, from Overseas Chinese to friends and families in China which the Communist controlled banks in Hong Kong convert to Yuan for onward transmission to the recipients, and also comprise communist business and miscellaneous profits in Hong Kong.
14.
culture, Communist influence in Hong Kong itself is exerted in 3 main fields - labour and commerce. Cultural penetration through schools (some 1.7% of student population attend communist schools) and communist literature; labour control through the communist controlled Federation of Trade Unions (this only represents about 10% of the labour force but is concentrated in some key public utility sectors) and influence in commerce through direct control or ownership of equity in numerous commercial and financial enterprises including 13 banks with around 130 branches, In 1976 the communists started to take advantage of the Hong Kong government's encouragement of new medium/heavy engineering developments and a communist associated firm announced plans to build a $10-20 million factory to produce machine tools. There are other communist plans to set up a major ship- repairing facility. All the indications are that the Peking government is, and will continue to be, keen to extract the maximum economic advantage from its relationship with Hong Kong.
Note: All values in US dollars.
UK GARRISON
15. The Services in Hong Kong are commanded by the Commander British Forces, a Major General. He is served by Headquarters British Forces
a small joint secretariat. The total strength of the garrison is 6,497 Servicemen and Women (RN 261, Army 5,980 (including Gurkhas), RAF 256) and 1330 locally employed personnel.
ROYAL NAVY
It is the Head-
16. HMS TAMAR is the Naval Shore Establishment in Hong Kong. quarters of the Captain-in-Charge. It provides essential base services to the force of 5 patrol craft (converted minesweepers) assigned for duty in Hong Kong,
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UK CONFIDENTIAL