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2. Although we quickly realised that there was no call for radical reorientation of the Colony's economic policy, we acknowledge that our investigations have been rewarded by the acquisition of interesting information regarding the Colony and the economic role it fulfils which hitherto was not fully realised. The interplay of poli- tical, geographical and financial forces has produced in Hong Kong an extremely complex organised community which is in a constant state of flux and if the Com- mission has achieved nothing but an analysis of this we feel that our labours would not have been in vain and that the commercial community should benefit from a consequent adjustment of the administrative viewpoint.
3. In Chapter II reference was made to an enquiry on the Colony's Economic Resources which was made in 1920. In 1896 a similar economic enquiry on a much smaller scale was made at the instance of the then Secretary of State, Mr. J. Cham- berlain. These reports reveal a gradual transformation of the Colony's economic function. In 1896 the entrepot trade was the predominant and practically sole ac- tivity of the Colony to such an extent that that vigorous and purposeful statesman recognised the position at a glance. Twenty-four years later, in 1920, no funda- mental change was apparent but other activities, though subsidiary, had grown sufficiently to justify what might be termed a census of production. In 1934 the transformation has progressed a little further and the industrialisation of the Colony has accelerated though it is still of subsidiary importance. Its progress would, how- ever, have been much greater but for one external event namely, the achievement of tariff autonomy by China in 1925 Under the previous regime of what was prac- tically mutual free trade Hong Kong was essentially as Chinese in its commercial and social relations as Shanghai or Tientsin. The flag was different but this con- stituted no economic impediment.
4. As soon as China became free to do what she liked with her Customs tariff she raised it, the main object of that time being an increase in revenue. Increases in the tariff duties have since then been rather frequent and the purpose has evolved from a simple desire to increase income to the complex aims of economic nationalism with its fiscal restrictions on the importation of foreign goods. While it is realised that this policy has not been specifically directed against Hong Kong, it has in fact caused a special hurt to the Chinese of the Colony.
5. Not that Hong Kong's entrepot trade has been so seriously affected as her other activities. Foreign goods are still imported because in the main they are essential and non-competitive with Chinese products, though many of them are likely to be gradually replaced by Chinese manufacturers. The products of Hong Kong factories are, however, now barred out from their former adjacent markets and have to seek a precarious outlet overseas. Now that, following the world depression, the overseas markets have shrunk, the instability of Hong Kong's position outside China's tariff wall is apparent.
6. Unless therefore the entrepot trade can develop sufficiently, or alternative markets be found to compensate for the loss of entry into South China of local pro- ducts, the Colony's rate of growth must slow down. The prospects of such develop- ment are not, however, promising as it is China's policy to curtail overseas imports or at any rate to import only essential raw materials and heavy machinery. Develop- ment of trade as a result of advancement of China's industrial policy must eventually depend on world recovery and an increase in China's ability to export or at least to produce more of her own common needs. These matters are entirely beyond local control and, therefore, need not here be further discussed.
7. Whether the Government of China were well advised or not in instituting a policy of restriction on foreign imports is beside the question. It is, however, extremely likely that the weapon was never intended for use against Hong Kong and that the damage the Colony has sustained is only a by-product of the tariff.
It seems incredible that the Chinese Authorities should ever contemplate striking a blow at a contiguous community 98% Chinese in race whose social and financial associa- tions are almost exclusively with their brethren in the Kwang Tung Province; a com- munity moreover whose wealth automatically flows back into China.