THE ECONOMY
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arrangements and compensation trade. Thus, besides constituting an important source of demand for goods and services produced by Hong Kong, China is equally important as a source of supply of goods and productive capacity to Hong Kong.
On the other hand, China has also invested heavily in Hong Kong, particularly since 1978. Its investment in Hong Kong ranges from traditional activities like banking, import/export, wholesale/retail, and transportation and warehousing to newer areas like property development, financial services, manufacturing and infrastructural projects.
Increasing financial links between Hong Kong and China are reflected by the rapid growth in financial transactions with China. While the Bank of China Group is the second-largest banking group in Hong Kong, after the Hongkong Bank Group, the latter group is the best-represented foreign bank in China, followed by the Standard Chartered Bank.
Hong Kong is a major funding centre for China. Most of China's fund-raising activities in Hong Kong have taken the form of syndicated loans. Although in some cases Hong Kong is not the direct source of funds, it serves as a window through which China can have access to external borrowing. These loans are mostly for financing China's own economic development, but some of them are used by PRC-interest companies in Hong Kong to finance their investment activities in Hong Kong or abroad. In addition to syndicated loans, PRC-interest banks and other enterprises have been making greater use of negotiable certificates of deposit (from banks only), bonds, commercial paper, and share issuance (through shell companies acquired for the purpose) to raise funds.
The prospects for further development of economic links between Hong Kong and China continue to be good, given the firm foundation established over the years and the continuation of open-door policies and economic reforms in China.
The Economy in 1990
Overall growth of the economy remained modest in 1990. The performance of domestic exports was weak, but there was a noticeable pick-up in the fourth quarter. Re-exports were robust throughout 1990, providing the main impetus to overall export growth. In the domestic sector, both consumption and investment demand improved in the second half of 1990, following a sluggish performance in the first half.
Notwithstanding the slow-down in growth since mid-1989, the economy was still facing capacity constraints following the rapid growth in 1986 to 1988. The labour market remained generally tight in 1990. Taking the first three quarters of 1990 together, the number of vacancies in most sectors was, however, smaller than in the same period in 1989. The rate of inflation was high in 1990. Apart from the inflationary pressures which were domestically generated, higher prices of oil products arising from the Gulf crisis added to these pressures since early August.
According to preliminary estimates, the growth rate in real terms of the GDP was 2.4 per cent in 1990, following increases of 7.9 per cent in 1988 and 2.3 per cent in 1989.
External Trade
The value of domestic exports rose by one per cent in 1990 over 1989. After discounting for an estimated one per cent increase in prices, domestic exports showed virtually no change in real terms. This compared with an increase of three per cent in value terms or zero growth in real terms in 1989. On a year-on-year comparison, domestic exports fell by five per cent, two per cent and two per cent respectively in real terms in the first three quarters
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