THE ECONOMY
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reduced the price competitiveness of Hong Kong's exports in world markets for most of 1985. Domestic exports to the major markets showed different movements. While domestic exports to China continued to grow rapidly, by an estimated 32 per cent in real terms, those to other major markets recorded decreases, including falls of seven per cent to the United States, 18 per cent to the United Kingdom, 12 per cent to Japan, and 14 per cent to the Federal Republic of Germany. In respect of domestic exports to China, however, there was a sharp deceleration in the year-on-year growth rate in real terms during the course of 1985, from a growth of 96 per cent in January to an estimated decline of 10 per cent in December, largely reflecting China's recent tightening of control over its foreign exchange spending.
Analysed by major commodities, domestic exports of textiles decreased by about seven per cent and of clothing by about six per cent in real terms. Domestic exports of footwear and watches and clocks registered increases in real terms, but they together accounted for only eight per cent of the total value of domestic exports. Domestic exports of other products declined, by about nine per cent in real terms.
The entrepôt trade continued to expand rapidly in 1985, with re-exports growing by 26 per cent in money terms or about 25 per cent in real terms. China continued to be the largest market for Hong Kong's re-exports, following by the United States, Japan, Singapore, Taiwan and the Republic of Korea. China was also the most important source of the goods re-exported through Hong Kong, followed by Japan and Taiwan. The major end-use categories of goods re-exported through Hong Kong were raw materials and semi- manufactures and consumer goods, representing 33 per cent and 29 per cent respectively of the total value of re-exports. Analysed by major product categories, textile yarn, fabrics and made-up articles, electrical machinery, and clothing which accounted for 15 per cent, nine per cent and seven per cent respectively of the total value of re-exports, showed substantial increases in real terms.
Imports grew by four per cent in money terms or about six per cent in real terms in 1985, against the corresponding increases of 27 per cent and 15 per cent in 1984. As in the previous year, this growth was strongly influenced by the substantial increase in re-exports. Retained imports, on the other hand, decreased by 10 per cent in money terms or roughly five per cent in real terms. Among the major end-use categories, retained imports of raw materials and semi-manufactures declined by around nine per cent in real terms, made up of decreases of 12 per cent in the first half of the year and about six per cent in the second half.
As the value of total exports (domestic exports plus re-exports) exceeded the value of imports, in 1985 the visible trade account recorded a surplus of $3,733 million, equivalent to 1.6 per cent of the value of imports. This was exceptional, and reflected mainly the decline in retained imports. In 1984, a deficit of $3,361 million, or a visible trade gap of 0.9 per cent, was recorded.
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Domestic demand, on the other hand, grew by one per cent in real terms in 1985, made of a growth of three per cent in private sector demand and a decrease of eight per cent in public sector demand. Private consumption expenditure registered a growth rate of five per cent in real terms, compared with six per cent in 1984. Overall expenditure on building and construction (including civil engineering) decreased by 10 per cent in real terms. Public sector expenditure on building and construction fell by 22 per cent, due to the completion of some public works projects and the major part of the MTR Island Line. Private sector expenditure on building and construction also declined, by one per cent in real terms, reflecting the effect of the completion of two large private sector building projects the new
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