THE ECONOMY
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the Republic of Korea, Japan and Singapore. With regard to the origins of the re-exports, the major suppliers apart from China were Japan, the United States, Taiwan, and the Republic of Korea. When analysed by end-use categories, a major proportion of Hong Kong's re-exports comprised raw materials and semi-manufactures, and consumer goods, representing 40 per cent and 42 per cent respectively of the total value of re-exports. Re-exports of textile yarn, fabrics and made-up articles, clothing, travel goods, and miscellaneous manufactured articles showed more rapid increases in real terms than other items.
Imports grew by 37 per cent in money terms or by about 32 per cent in real terms, which compared favourably with the corresponding growth rates of 19 per cent and 14 per cent in 1986. The major sources of imports were China, Japan, Taiwan, the United States, the Republic of Korea and Singapore. Apart from the upsurge in re-export trade, a significant proportion of this growth was attributable to retained imports, which registered an increase of about 21 per cent in real terms. Retained imports of raw materials and semi- manufactures and of capital goods, in particular, grew by about 27 per cent and 26 per cent respectively.
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As the value of total exports (domestic exports plus re-exports) was slightly higher than that of imports, a visible trade surplus of only $87 million was recorded in 1987. Thus, the visible trade account was virtually in balance. This compared with a surplus of $0.6 billion, equivalent to 0.2 per cent of the total value of imports, recorded in 1986. As the prices of imports rose slightly faster than those of total exports, the terms of trade deteriorated slightly over the level in 1986.
Domestic Demand
The growth rate of domestic demand, at 12 per cent in real terms, was higher than that recorded in 1986, at nine per cent. Reflecting generally higher personal incomes and an improved standard of living, private consumption expenditure grew by 11 per cent in real terms in 1987, following a 10 per cent growth recorded in 1986. Government consump- tion expenditure grew by five per cent in real terms. This was lower than the six per cent growth recorded in the previous year, and was well below the growth rate of the GDP, reflecting the government's policy of keeping public expenditure under control. Investment demand, measured in terms of the gross domestic fixed capital formation, grew by 15 per cent in real terms in 1987, whereas the increase in 1986 was seven per cent. Among its main components, expenditure on building and construction rose by seven per cent in real terms in 1987, reflecting the work in progress on a number of major infrastructural projects and large-scale building developments. Expenditure on plant, machinery and equipment grew by 27 per cent in real terms, following an increase of 10 per cent in 1986. A significant proportion of this growth was attributable to higher investment in plant and machinery for use in the manufacturing sector, which helped to increase its productive capacity and improve its efficiency.
The Labour Market
As 1987 was the second consecutive year of rapid economic growth, the overall demand for labour was even stronger than in 1986. However, there was a slow-down in the growth of labour supply, largely caused by a slight reduction in the labour force participation rate. With the demand for labour outstripping supply at the prevailing wage levels, the labour market became very tight. Shortages of labour were experienced in many sectors, and