THE ECONOMY
working for Hong Kong companies, either through joint ventures or in tasks commis- sioned by Hong Kong companies in the form of outward processing arrangements and compensation trade. This, in effect, provides Hong Kong with a substantial production base. Concurrently, China has also been investing heavily in Hong Kong. Its investment ranges from traditional activities such as banking, importing and exporting, wholesaling and retailing, and transportation and warehousing, to newer areas such as 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 in recent years. The Bank of China Group is the second largest banking group in Hong Kong, after the Hongkong Bank Group. The latter group, meanwhile, is among the best-represented foreign banks in China; others include the Bank of East Asia and the Standard Chartered Bank.
Hong Kong is a major funding centre for China. Most of China's fund-raising activities in the territory 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 cangain access to external borrowing. These loans are mostly for financing China's own economic development, but some are used by China-interest companies in Hong Kong to finance their investment activities in the territory or abroad. In addition to syndicated loans, China- interest banks and other enterprises have been making greater use of negotiable certificates of deposit, bonds and the issue of shares to raise funds. A major development over the past two years has been the listing of the shares of 15 of China's state-owned enterprises on the Hong Kong Stock Exchange.
The Economy in 1994
External Trade
Re-exports continued to provide the key impetus to export growth, rising by 15 per cent in value terms in 1994. After discounting price increases, the growth rate in real terms was about 14 per cent. The corresponding increases in 1993 were 19 per cent and 20 per cent, respectively.
China remained the largest market for, as well as the largest source of, Hong Kong's re- exports. Although re-exports involving China grew strongly by 16 per cent in value terms in 1994, the rate of increase was less rapid than in the preceding year. The macro-economic adjustment and control measures implemented by China since July 1993 resulted in a slackening in Hong Kong's re-exports to China for the latter's internal use. Re-exports to China for outward processing also recorded a slower growth in the first half of the year, before resuming a rapid increase in the third quarter.
Re-exports to the United States of America and Japan continued to show substantial growth, increasing by about 14 per cent and 21 per cent, respectively, in real terms in 1994. A pick-up in the demand for imports, coupled with the effect of exchange rate movements, boosted Hong Kong's exports to these two markets. While re-exports to Germany and the United Kingdom slowed down considerably, transhipments to both markets showed sub- stantial increases. The major suppliers of Hong Kong's re-exports, apart from China, were Japan, Taiwan, the United States of America and the Republic of Korea.
Hong Kong's re-exports comprised mostly consumer goods, and raw materials and semi- manufactures, accounting for 53 per cent and 28 per cent, respectively, of the total value.
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