SECRET
accounted for 19% of Hong Kong's total imports which put her in the No 2 position as a supplier to Hong Kong. At present Japan was the No 1 supplier but he hoped that in due course China would become No 1 supplier. China was already the most important supplier in many particular product areas especially foodstuffs, raw materials and 11ght consumer goods. China also supplied large quantities of water to Hong Kong which meant that it would not be necessary in future for Hong Kong to invest in expensive new installations to desalt sea water. In 1979 China had earned US$ 3 billion in trade with Hong Kong. In addition to this Chinese financial and commerial enter- prises had also earned large amounts of foreign exchange, possibly amounting to US$ 1 billion. The most important way in which Hong Kong could help China was as a market for exports and a source of other foreign exchange earings. In addition China had been actively investing in Hong Kong especially in recent years. He hoped that when Hong Kong businessmen had acquired a better understanding of the way in which the new special economic zones that had been established in Guangdong province worked, they would be able to make full use of them: there was a shortage both of land and, to some extent, labour in Hong Kong. It would be to the mutual advantage of China and Hong Kong if Hong Kong industrialists were able to set up operations that were land and labour intensive in the new economic zones, and, link up these operations with capital and technology intensive processes in Hong Kong. Hong Kong had also developed a wide range of facilities in recent years and had become a major commercial, financial and shipping centre. These facilities, and particularly the container port, could be of great use to China.
Cooperation between Hong Kong and
Mr Gu appreciated what the FS had said. It was a common aspiration to expand economic cooperation between the two sides. China wished to increase trade with Hong Kong and develop cooperation in the special economic zones. Such cooperation could take on various forts, for example joint ventures or the processing of material imported from Hong Kong for re-export. Guangdong province was natural. The two territories were only separ- ated by a thin strip of water. China should improve its supply to Hong Kong of fresh vegetables, cereals and livestock on the hoof. It should attempt to acquire a larger proportion of the market for daily necessities in Hong Kong. There was still much that could be done in improving the quality of such products. At the moment for example the pork provided to Hong Kong was too fatty and did not satisfy the Hong Kong residents. There should be an improvement in pig breeding. The FS pointed out that China had a guarateod market for fresh treat. The Hong Kong people preferred warm meat to frozen meat. Ar Gu agreed that China had many advantages in buing so close to Hong Kong but it nevertheless needed to improve the quality of its agricultural products in order to increase its share in the Hong Kong market. Ferhaps China ought to be care ful about replacing Japan as the No 1 supplier to Hong Kong. It might worry the Japanese, He nevertheless thought that it would be possible for China to do this if she wished.
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The FS