Appendix "B".
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7. Further signs of depression are not wanting. If we turn to the Treasury figures of Revenue for the years 1932-1934 we find therein a steady progressive decline in every item and a strongly marked steep decline in those items which may be said to be the fruits of luxury expenditure. Appendix ("B") gives comparative tables of the Revenue derived from liquor, and tobacco duties, Bets and Sweeps and Entertainment tax during these years. The figures speak for themselves and pro- vide us with clear evidence of the effect of the depression upon the general public of the Colony.
8. The world wide depression, a reaction from the post war boom, was bound to touch China and therefore Hong Kong somewhat later than the western and more highly organised countries. It would, of course, be impossible to prescribe a special antidote to this for Hong Kong and as far as the Colony's present position is the re- sult of world depression so far must we await the general improvement in world trade which the more optimistic of us believe now to be commencing, albeit slowly and under the doubtful aegis of economic nationalism.
9. If we examine available statistics more closely we will find that a great proportion of the trade of Hong Kong is with China. It is indeed quite apparent that Hong Kong performs the function of a seaport for China much in the same way as does Shanghai. Hong Kong handles about one quarter of China's coastwise and foreign trade. She suffers, therefore, not only from the effect of the world de- pression on China, in which respect there is a decreased demand for China's pro- ducts and labour and therefore a decreased purchasing power for imports, but also from other factors. In 1931, having the power of tariff autonomy, China began to increase her Customs tariffs for the main purpose of increasing revenue. This factor in itself may be held to have tended to decrease foreign trade while encourag- ing local industrial efforts. Unfortunately, however, in spite of the declaration by the Chinese Government contained in Annex 3 to the Tariff Autonomy Treaty of 1928 regarding the abolition of internal taxation on foreign imports, many different classes of taxes in many parts of the country have been from time to time. imposed, not only causing a decrease in purchases owing to increased prices, but also decreasing the will of people to trade freely owing to constant uncertainty. The result of this increasing taxation and the rise from time to time of political uncertainty with internecine brigandage and warfare in the interior, together with decreased world demand and the rise of alternative markets has been to decrease production of basic products in China both in quantity and quality.
10. It is difficult in many respect always to distinguish cause and effect, but whether the cause be drop in demand or a decrease in quality, exports from China have decreased in the last few years while imports of foodstuffs have increased, with a final resultant in decreased purchasing power and decreased imports of goods other than foodstuffs. A vicious circle. The one ray of hope is that of recent years China has been making a valiant attempt to establish industries calculated to supply common needs, and recently to intensify agriculture. Very much work remains to be done, but it is hoped that the movement will continue on sound and careful lines, and at the same time that taxation may so be decreased as to give an impetus to an increase in trade and prosperity. It need hardly be said in passing that China is a country capable of great development in many directions and that Hong Kong is in a not inconsiderable position to help therein if it is given a reason- able chance to co-operate.
11. In our deliberations we had, however, to consider actual facts. As far as its commercial existence is concerned Hong Kong's raison d'etre is the entrepot trade of South China. The growth of economic nationalism throughout the world has led to a reduction of International Trade. Many goods which were formerly manufactured in one country because of special aptitude or other reasons and shipped to other parts of the world in return for the special goods of those parts, are now being manufactured in many countries, and the tendency is at present, in a great number of countries, towards an endeavour to produce their own require- ments. China is increasingly adopting this policy and, inasmuch as it does this, so the trade of Hong Kong must change.
12. While there is every likelihood that the importation of common consum- able goods into China will decrease in inverse ratio to the increase in her industrial