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mark-ups by distributors in Hong Kong have increased
significantly or that there has been some increased
under-invoicing of goods from China to evade exchange
controls. However, although the retail prices of goods from China increased at slightly faster rate than those of
other consumer goods, the rate of increase was still well
below the inflation rate in China. Also there was a significant slow-down in the year-on-year rate of increase in the retail prices of goods from China in December 1988 compared with November, largely because of a sharp slow-down in the year-on-year rate of increase in the retail prices of foodstuffs from China (from 12% in
November to only 8% in December).
43.
Even in respect of the prices of foodstuffs which were believed to be most influenced by imported inflation from China, the situation was less serious than many people have suggested. On the one hand, China's share in Hong Kong's retained imports of foodstuffs has declined to only 29.5% in 1988 from 32.5% in 1987 (after allowing for local production and local mark-ups between importation and final sales, probably less than 20% of final expenditure on foodstuffs involves payments to China). On the other hand, probably because of keen competition from other sources, the prices of foodstuffs from China increased at rates only slightly faster than those from other sources (including both local and
CONFIDENTIAL #2
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