8
HONG KONG ANNUAL REPORT
merchants and industrialists quickly turned to other sources of supply. The steps which Hong Kong took to cut off a major part of its livelihood by enforcing the embargo on trade with China became increasingly effective. Import controls, end-use controls, movement controls, export controls, increased preventive staff, more and faster patrol craft to intercept smugglers in the Colony's waters, all contributed to the diminution of trade with the tradi- tional major customer. Hong Kong was even expected at times to act as a final checkpoint on the controls exercised by other members of the United Nations.
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Further, the Chinese Government began to exercise rigid control over China's foreign trade, and it now prefers to make bulk deals direct with foreign governments, in this way largely by-passing Hong Kong and the port and warehousing facilities which it offers.
It has taken some time to assess the long-term consequences for Hong Kong of these developments, but it is now generally accepted that the export trade to China has been lost for the foreseeable future, even if the embargo were completely lifted; and that the Colony's future prosperity rests upon its success, first, in adapting its entrepôt facilities to serve the world as a whole and, second, in establishing its own industries on a secure and prosperous footing by the development and diversification of its products and the winning of as many new markets as salesmanship, price and quality can attract.
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The economic effects of the Korean War carried one compensa- tion for the Colony, although 'this was disguised at the time as merely another difficulty. The United States Government enacted its Foreign Assets Control Regulations in 1952, under which the importation into the United States or its dependencies of any merchandise originating in China or North Korea was prohibited. Furthermore, under these regulations, a wide range of goods traditionally obtained from China or North Korea was presumed to be of Chinese or North Korean origin, even though produced or manufactured in Hong Kong or in any other non-Communist terri- tory and then exported to the United States. To surmount this bar to trade and to secure the resumption of this class of exports to the United States the Government introduced a system of inspection and certification of Chinese-type goods manufactured in Hong