G.F. 326
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6.
Not all imports from China are consumed locally in Hong Kong. During the last five years, 1978-82, 41% of the value of goods imported from China were re-exported to other countries. China dominates Hong Kong's entrepot trade, both in respect of being the market for Hong Kong's re-exports and as the source of goods re-exported through Hong Kong.
7.
A number of factors account for the rapid growth in the value of imports from China during the last five years, 1978-82. First, after the recession in 1974-75, the economy of Hong Kong has grown rapidly, at a rate of 12.4% p.a. in real terms during the six years 1976-81. Apart from those items of Chinese products, the demand for which bears a negative relationship with income (these should make up only a very small proportion of the total), economic growth naturally led to an increasing demand for Chinese products in general. By 1982, the value of imports from China was once again greater than that from Japan. This can be partly explained by the fact that the products imported from China are generally less income elastic and hence are less affected by the recent recession when compared with those from Japan. Second, as the pricing strategy used by the Chinese has become much more market oriented in the latter half of 1970s, the prices of Chinese products have risen sharply and hence contributed to the increase in the value of imports from China. Third, in the last five years 1978-82, there were more than half a million legal and illegal immigrants entering Hong Kong from China. Apart from sheer increase in number, they are also likely to be consumers of Chinese products, because they suit them in respect of both price and taste: this is because most of the immigrants belong to the low income group
CONFIDENTIAL #3