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policies). A deficit had been expected, but was perhaps larger than anticipated. Efforts might thus be made to tighten control and limit the size of the deficit.
In
11. DS(ES)2 noted that HK-China trade had continued to grow
strongly, particularly in terms of reexports (both into China and of goods of China origin). These reexports accounted for around 75% of the total volume of Hong Kong's reexports. Domestic exports to China were also a significant element. The upsurge in outward processing arrangements, which had begun in mid-1986 and was
continuing, fitted in with a booming economy and had contributed to the rapid growth of domestic exports.
the short-term, this allowed the Hong Kong economy a high degree of flexibility. Local manufacturers could handle
more orders within their existing capacity. At the same time, there might be less incentive to upgrade capacity
and facilities in Hong Kong. In the long run this would be damaging, but there were few signs of it yet: capital investment in Hong Kong was still up, and some of this was
in new and better machinery.
12.
STI agreed, noting the short-term benefits of tapping China's low labour and price structures. This enabled Hong Kong companies to continue to produce goods which could no longer be produced competitively in Hong Kong. But as outward processing activities increased, there would be increasing strain on rules of origin. This would
need to be carefully monitored. Most manufacturers were
careful to abide by the rules, but there could be
increased questioning from the EC and the US. In so far as the pace of industrial development was concerned, as long as opportunities for contracting out work to China or for relocating manufacturing operations in China existed and these shifts continued to be profitable, manufacturers
were unlikely to recognise the longer term need to make
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