TWO DECADES of ECONOMIC ACHIEVEMENT
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more in line with the growth in world trade. But the statistics measuring volume of trade tend to be biased downward when there has been an increase in the quality of goods produced. Such a process of trading up in quality would have taken place in Hong Kong without any extra stimulus, but the advent of trade restrictions en- couraged this movement.
These restraints began in 1959 with restrictions on textile exports to Britain and, by 1975, some form of bilaterally agreed restraint was in operation for about 65 per cent of textiles and clothing exports from Hong Kong. Typically the restrictions have been defined in terms of quantities and have so given manufacturers the in- centive to produce higher quality products. Because the restrictions also tend to be applied to Hong Kong's competitors, they have also served to reduce the effect of competition from other lower wage economies.
Change in Exports
Growth in exports also involved a change in the pattern of trade. Exports of electrical machinery, apparatus and appliances in the early sixties represented only two per cent of total domestic exports. But they grew rapidly and in 1975 this category of products represented 12 per cent of total domestic exports by value. The manu- facture of watches and clocks, fabricated metal products, and non-electrical machinery recently gained in importance.
In the background, clothing exports remained as the most important category, representing from 35-40 per cent of total domestic exports since 1960. Textiles exports declined slightly in importance. Other products, such as wigs, experienced a tem- porary vogue but then faded out. A mixture of these events, coupled with the rapid growth achieved, illustrates the flexibility with which the manufacturing sector copes with the rapid changes in consumer demand in the major markets for Hong Kong goods.
The Gross Domestic Product
The rapid increase in trade brought equally rapid increases in domestic income. Table 4 shows growth rates for the Gross Domestic Product for different periods since 1961. The high rate of growth in the Gross Domestic Product generated by the rapid expansion in trade levelled off from the early sixties, much in line with the performance in external trade.
But there was an acceleration in inflation rates as measured by the difference between the current and constant price estimates for the Gross Domestic Product. The inflation rate was roughly 2.4 per cent from 1961-5; then 4.1 per cent from 1965– 70; and 8.2 per cent from 1970-5. The price increases were mostly imported, although the marked increase in the money supply connected with the stock exchange boom in 1972-3 contributed an extra push to certain more domestically orientated prices.
Prices of imported food and consumer goods increased at an average annual rate of 12.1 per cent and 6.6 per cent respectively from 1970-5, contributing to correspondingly rapid increases in consumer prices. Prices for raw materials, capital
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