and the PRC account for about one third of each other's trade much of which is of course re-exports. For example, re-exports in 1991 accounted for 70 percent of HK's total exports compared to 45 percent in 1986. Hong Kong accounts for about two thirds of the direct foreign investment in the PRC, though an indeterminate percentage of this money is other foreign investment funnelled through the territory. The PRC itself is thought to have invested some
some $20 billion in Hong Kong an uncertain percentage is by PRC state organizations and enterprises that set up subsidiaries in the territory so that they can reinvest in the mainland as 'foreign firms' receive the favourable terms offered to foreign investors. In fact China has become the largest investor ahead of the United States and Japan. Some two thirds of Hong kong's manufacturing has shifted to southern China. Hong Kong is by far the largest port servicing not only the south but nearly all parts of China. According to a recent calculation of the Financial Times the relationship with HK in all its various ways accounts for 18 percent of the value of China's GNP. Hong Kong provides China with transportation to the outside world, marketing skills, managerial talent, financial services and so on. Much of this depends upon the rule of law in Hong Kong. Were this to be weakened PRC major interests would be among the first to suffer. Some people speak of Shanghai or other Chinese cities as potential rivals to Hong Kong. This is utter nonsense. Not until China itself enjoys the rule of law will this become possible. Take for example banking and insurance; could any of these be conducted on a large scale basis without a trusted legal system of contracts etc., enforceable by an independent judiciary in courts of law of accepted probity? In fact the danger is less of Shanghai reaching so high as to challenge Hong Kong, but of Hong Kong declining to the level of Shanghai.
Hong Kong's significance, however, transcends the bilateral relationship with
with China. It has become the hub of a huge triangular economic network involving itself, the PRC (principally southern China and the adjoining province of Guangdong) and Taiwan. The three way trade between them reached more than $80 billion in 1991. Taiwan's economic relations with the mainland are conducted primarily through Hong Kong. These too have grown substantially since the late 1980s. Trade which was less than $50 million in 1978 was valued at $4 billion in 1990 and some $7 billion in 1992. In 1993 it is expected to reach $10 billion. Despite Taiwan's ban on direct commercial relations with the mainland, some 3,000 Taiwanese firms have invested an estimated $3 billion in projects in China. Indeed some estimates put the figure as high as $10 billion as Taiwan too has followed Hong Kong in relocating labour intensive and polluting industries to adjoining provinces on the mainland. Some commentators have described this process of economic engagement as economic integration. It is perhaps premature to do so as three centres lack common economic institutions or agreed procedures handling their many and diverse economic relationships. These would seem to be buttressed by the familial, social, historical and cultural ties of a peculiarly Chinese kind. Accordingly, just as in the case of its bilateral ties with China it is Hong Kong's
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