50 The Economy
After the decline of the past decade or so, there was a small turnaround in the activity of the manufacturing sector, with its net output or value added rising back by 1.7 per cent in real terms in 2004. In 2005, there was a further year-on-year increase of 2.1 per cent in real terms. It is conceivable that the Closer Economic Partnership Arrangement (CEPA), which has given tariff-free treatment to certain products of Hong Kong origin since January 1, 2004, has boosted Hong Kong's manufacturing sector a little. However, since the textile and clothing (T&C) quota was abolished under the World Trade Organisation (WTO) on January 1, 2005, there have been heightened uncertainties over possible safeguard measures imposed by the European Union and the United States on the Mainland's T&C exports, prompting some increase in clothing production in Hong Kong from mid-2005. Overall, improved labour productivity plus technology upgrading has meant fewer jobs in the sector. In 2005, the sector employed around 178 800 people, slightly down from 2004.
Economic Links between Hong Kong and the Mainland
The strengthening economic links between Hong Kong and the Mainland since the latter adopted the open door policy in 1978 have brought substantial mutual benefits. The flow of goods, services, people and capital between Hong Kong and the Mainland and between the Mainland and the world via Hong Kong have created a remarkable growth in income and employment opportunities in both Hong Kong and the Mainland over the years.
Visible trade between Hong Kong and the Mainland has expanded 190 fold since 1978, at an average annual rate of 21 per cent in value terms. The growth remained appreciable in 2005, at 14 per cent (Chart 6). The previous year, along with such strong growth in bilateral trade, Hong Kong ranked the 11th and the Mainland the third largest trading entity in the world.
Chart 6
2500
Visible trade between Hong Kong and the Mainland
HK$ Billion
Per cent
40
2000
1500
1000
500
0
Total trade value (left scale)
Year-on-year rate of change (right scale)
30
20
10
-10
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Since the Mainland adopted economic reform and open door policy in 1978, there has been a rapid expansion in merchandise trade, especially re-export trade, between Hong Kong and the Mainland.