G.F. 326
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44.
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(b) China's demand for Hong Kong products
To the extent that China allows part of the excess demand in its domestic economy to be satisfied by imports, Hong Kong's exports to China will benefit. Domestic inflation in China will tend to enhance the relative price competitiveness of Hong Kong products in the China market. However, a large part of the gain in relative price competitiveness of Hong Kong's exports to China has almost certainly been eroded already by the depreciation of Renminbi in the black market.
45.
Judging by the very rapid growth in the values of Hong Kong's domestic exports (29%) and re-exports (50%) to China in the first half of 1988, Hong Kong's exports appear to have been benefitted by China's rapid economic growth as the latter has to rely more on imports to meet unsatisfied demand.
46.
(c) Outward processing activities
Domestic inflation will increase wage rates in China and hence increase production costs (mostly labour costs) for outward processing activities commissioned by Hong Kong businessmen in the Pearl River Delta region. But again, much of this adverse impact will have been offset already by the unofficial depreciation of the Renminbi. As most of the contracts are denominated in Hong Kong dollar, it is unlikely that labour costs in Hong Kong dollar terms will increase much as a result of domestic inflation in China since a given amount of processing fees in Hong Kong dollar terms can now be converted into much more Renminbi than previously.
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