THE ECONOMY
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these groups. The pressures of protectionism and growing competition from other economies have resulted in local manufacturers intensifying their efforts to diversify, not only products but markets. A major proportion of Hong Kong's manufacturing output is eventually exported. During the period 1984 to 1993, the volume of domestic exports grew at an average of 5.1 per cent per annum, notwithstanding the restructuring in the manufacturing sector and decline in employment.
Manufacturing firms in Hong Kong must be flexible and adaptable to cope with the frequent changes in demand patterns and to maintain their external competitiveness. The existence of a large number of small establishments, providing an extensive local sub- contracting system, has greatly facilitated the necessary changes in production and helped to increase the flexibility of the manufacturing sector. Moreover, increasing use has been made of the outward processing facilities in China for handling the relatively labour- intensive production processes. Because of land and space constraints, the territory's manufacturing industries usually operate in multi-storey factory buildings, resulting in concentration in the production of light manufactures.
Over the past 30 years, many industries have emerged and grown, the most notable being plastics and electronics. The textiles and clothing industries remain prominent, despite their continuous decline in relative importance. Other industries of importance include fabricated metal products, electrical appliances, watches and clocks, toys, jewellery, and -printing and publishing.
Of particular note is the significant upgrading in labour productivity within the manufacturing sector over the years. During the period 1973 to 1991, the value of net output by the manufacturing sector grew at an average annual rate of 14 per cent, while manufacturing employment fell at an average annual rate of one per cent. Even after taking into account the effect of price increases on the output value, a significant improvement in labour productivity was evident.
The most significant change occurred in the textiles industry. The share of this industry in the net output of manufacturing declined from 27 per cent in 1973 to 15 per cent in 1991, while its share in manufacturing employment fell from 21 per cent to 15 per cent. Set against this decline was the expansion of the electrical appliances and electronics, and watches and clocks industries. Between 1973 and 1991, their shares in the net output of manufacturing increased from nine per cent to 12 per cent, and from one per cent to two per cent, respectively.
Market diversification over the years has been the combined result of initiatives taken by local manufacturers and exporters, and promotion efforts supported by the government. Over the past five years, China's share of Hong Kong's total domestic exports has been increasing steadily, and in 1993, overtook the United States of America to become the territory's largest market. The shares of domestic exports to a number of countries in the Asia-Pacific region have also risen. In 1993, Singapore became the fourth largest market for Hong Kong's domestic exports. The territory has, in addition, diversified into other new markets, including countries in the Middle East, Eastern Europe, Latin America and Africa.
The Services Sector
Over the past decades, the rapid growth in external trade has not only enabled Hong Kong to build up a strong manufacturing base, it has also provided the underlying conditions for the services sector to flourish and diversify. Of particular note has been the rapid growth