41
52.
Apart from the three large projects
mentioned above (paragraph 50), investment by Hong Kong residents in China is believed to be mainly
concentrated in light manufacturing industries and in
tourist facilities such as hotels and restaurants.
For manufacturing, it is mostly in the form of
contractual joint ventures, compensation trade and
processing and assembling of supplied parts and components. In many instances, raw materials are imported into Hong Kong and after having undergone some processing work will be "exported" to China (probably Shenzhen) in the form of semi-manufactures or simply "re-exported" to China in their original
form. These items will then be "imported" back into Hong Kong after some further processing work has been
done on the other side of the border and will then
undergo the final stages of the processing and assembly work in Hong Kong before they are again "exported" to overseas markets, or will simply be "re-exported" through Hong Kong to overseas markets. This set up is intended to allow manufacturers to reap the benefit of low labour costs in China; where
such a cost advantage more than compensates for the
transportation cost involved. Such cross-border movements of goods, if on a substantial scale,
inflates the statistics for trade between Hong Kong
and China. The very rapid growth of Hong Kong's domestic exports and re-exports to China (and to a
lesser extent also of Hong Kong's imports from China) in the past few years is almost certainly at least partly related to the development of compensation trading arrangements between Hong Kong and the SEZs.
C.F. 326
CONFIDENTIAL # 3