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There is one exception to these generalisations, a deviant case which has never been analysed by the economists who deplore the underdevelopment of the colonial empire. The amazing economic growth of Hong Kong since its liberation from the Japanese occupation in 1945 is well known, but it is widely assumed that before the war the Hong Kong economy was almost entirely based upon the entrepôt trade transporting goods to and from China and that its transformation from a trading mart to a manufacturing centre began with the post-war arrival of industrialists from Shanghai fleeing from the chaos of China's civil war. In fact, the development of industry had begun in the nineteenth century and by 1939 Hong Kong had built up a flourishing export trade in manufactured goods to China and neighbouring Asian countries and was even successfully competing with British firms in a few items in the British home market.
The growth of Hong Kong industry was accelerated in the 1930s by decisions taken at the Imperial Economic Conference which met at Ottawa in August 1932. The conference was called to find ways of combating the worldwide economic depression by stimulating trade between the countries of the empire after the British government had decided to abandon its long-standing commitment to free trade and to impose a ten per cent tariff on foreign imports. The conference was mainly occupied with bargaining between Britain and the dominions over the terms on which agricultural products from the dominions would enter the British market and the access of British manufactured goods to the dominions.
The ministers meeting at Ottawa also decided to impose stringent restrictions by tariffs and specific duties on imports of textiles and other goods from Japan which were beginning to penetrate empire markets, displacing British and Canadian manufactures. Chinese businessmen in Hong Kong took advantage of this attempt to exclude Japanese goods from dominion and colonial markets to export large quantities of cheap footwear and textiles to the empire. This provoked indignant complaints from industrialists in Britain and Canada who demanded that restrictions should be placed on the supercompetitive Hong Kong manufactures.
Hong Kong's successful penetration of empire markets forced the British government for the first time to consider what its policy should be towards the industrial development of the colonial empire. Two interdepartmental committees of civil servants were set up in 1933 and 1937, but no authoritative decision was reached by the cabinet before the outbreak of war in 1939. Officials at the Colonial Office defended the right of the colonies to diversify their economies by moving into manufacturing, but the Board of Trade and the Treasury were generally unenthusiastic about such schemes where they might result in a reduction of British exports.