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air
-
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e Sorur: Si 1+ on affectiv: than tryin; to
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:
by mini.tw; of Batince na lo attrah.d.
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fact in tuis nran am. cubi.ot to
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i
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/Distribution
I
HONG KONG TRADE AND PAYKNITS
£ million
(approximate)
1966
From: V.L.
Q&A
Ching
Other
Total
60
60
160
300
500
70
80
nagl.
320
470
+10
+ 20
-160
+ 20
- 110
Importa
Exports and re-exports
Trite balancɔ
Invisibles:
Touris
I
U.K. forces
+10
Earnings on Ebalances
+15
Other 1.F...
-10
Other (incomplete)
5
+10
Long-term capital
Total
Errors and emissions
Ingresso (+) in monetary
holdin s, of Thich:
sterling
70
+
10
15
10
5
70
20
20
+ 110
90
+
55
35
other currencies
fetal sterling hollings' end-1966, £322 million not,(and-March 1967
dollar holdings en:-1966 £51 million
£236 million)
19/9/67
Diet -ibution:
Kr. Edwar o
Urc. Connolly
Siz Alae Calimero-s
Hr. Figure o
Hr. back
fir. Raphael
Ur. hekay Mr. Ravlinson
Mr. Ryrie
Kr. iht
Hår. Annan.
Kr. Innno
Kr. Spen 1er
Mr. Horton
Nr. Mhillips
tecn
77: Hankins
Für. Darlin, toa
Mr. Forsey 702003
Kro. Horbun
Hr. Harr
Mr. Thalay
群:
Lr. Dennon
Mr. Hildyan!
}
TrecJury
Bank of M-223:
Ministry of Tefancl
..1..
Je Convenith 3241 3
Foreign offic
Hell. Tronrary
10th H2", 1967
E
SECRET
A Note on the Economic Value of Hong Kong to China
1. Under normal circumstances economic considerations would weigh
heavily against Chinese interference in Hong Kong's present status. From
the Colony China obtains a large annual trade surplus, most of the
remittances contributed by Overseas Chinese, and the important benefits
from Hong Kong's entrepot role. The following paragraphs set out the
chief facts about China's economic relations with Hong Kong.
Trade with and through Hong Kong
2.
Chinese exports to the Colony in recent years have accounted for over
nine-tenths of the annual two-way trade, giving Peking a large surplus
(in Hong Kong dollars) ranging from the equivalent of £58 million in
1961 to £168.7 million in 1966:-
Chinese exports to Hong Kong*
Hong Kong exports to China Hong Kong re-exports to China China's trade
surplus
1961 1962 1963 1964 1965 1966
(£ million)
64.5 76.2 92.5
0.5 0.5 0.5
5.7 4.8 3.9 58.3 70.9 88.1
123.1 145.0 173.1
0.8 1.1 0.96
2.9 3.4 3.4 119.4 140.5 168.7
(a more detailed table showing the composition of trade is given at
Annex).
This surplus, which is regularly converted into sterling, has played a
major role in financing Chinese trade deficits with other areas of the
Free World with the industrial countries of Western Europe in 1959-60
and again in 1965-66 and with Canada, Australia and other major grain
exporters to China.
-
3. The Colony depends largely on China for supplies of fresh fruit and
vegetables, meat, dairy products and oilseeds, and to a lesser extent,
for the main staple foodstuffs such as rice, wheat and sugar. Although
large amounts of rice are imported from China the principal sources of
supply are the South East Asian countries. There is also a considerable
market for Chinese textiles, simple machinery and other manufactured
goods.
4. From 1962 to 1965 Chinese exports to Hong Kong increased at an
average annual rate of 24%. This may be regarded as a period of
exceptional growth, during which China was not only benefiting from the
long-term expansion of the Hong Kong economy and population, but
regaining a market largely lost in the difficult years of 1960-62. Signs
of a levelling off appeared in 1965-66, and in the 12 month period July
1965 to June 1966, Chinese exports showed an increase of only 4.2% over
the previous 12 month period.
This may
/have
*(1) Total Chinese receipts from exports to Hong Kong are probably
somewhat higher than shown in the HK Government statistics, since
valuation takes place when the goods first enter the Colony, and
therefore excludes the profit margins of Chinese trading corporations
operating in Hong Kong.
(2) Re-exports of goods obtained from China (see para. 5) are
recorded as importa from China both by HK and by the country eventually
receiving them.
SECRET
have been due largely to the levelling off of the economic boom in the
Colony and the consequent lower increase in demand. Shortages of supply
(reportedly in evidence at the Canton Fair in April 1966) may also have
played a part. The third and fourth quarters showed a sufficiently large
recovery to lift the total figure of Chinese exports to £173.1 million,
an increase of 19% over 1965.
A part of this increase must be attributed to a change in Hong Kong
Fegulations which have increased the coverage of trade statistics.
Compared with 1965 recorded figures for 1966 may over state the growth
by about 5%.ecorded
Ünder normal circumstances Hong Kong's consumption requirements could be
expected to continue to grow, but further Chinese successes would
probably turn increasingly on the quality and diversity of their
exports.
5. Entrepot trade. The figures show that Hong Kong's domestic exports to
China are negligible, and that most of the items sold originate
elsewhere. Such re-exporta include chemicals, base metals, textile
fibres, and animal and vegetable materials. Their value + however, is
ateadily decreasing, as China ships more and more goods. from the
original supplying countries. The value of Hong Kong's re-exporta of
goods obtained from China is not published, but from information
supplied by the political advisor's office is believed to have been
about £34 million (about 20%) last year (1966). Goods thus re-exported
include Chinese food specialities, textiles, animal by-products and
medicines; and are sent mostly to South East Asia, Japan and Europe. It
is evident that the Chinese still find it convenient to use Hong Kong
and its variety of services for shipping many of their exports. Their
own trading organisations, moreover, are not nearly so well equipped as
Hong Kong merchants to handle a variety of small orders from overseas
markets. Never- theless, as time goes on, the Chinese may be expected to
improve their own facilities, and rely correspondingly less on those of
Hong Kong.
6. Commercial liaison. Hong Kong is in addition a useful trading outpost
for China, especially as regarde commercial dealings with countries with
whom Peking does not have diplomatic relations, Preliminary negotiations
for grain deals with Australia and Canada have often taken place in Hong
Kong. Western firms, too, can readily make contact with Chinese
commercial organisations in the Colony.
Overseas remittances
7. Most of the remittances from Overseas Chinese to the mainland are
channelled through communist-controlled banks in Hong Kong. Up to 1958
they averaged about £25 million yearly, but subsequently there was a
prolonged decline, largely because of unfavourable reaction among
Overseas Chinese to the introduction of communes. This was accentuated
by the tendency of people abroad to send food parcele instead of cash at
the time when the Chinese food situation was at its worst although it
temporarily increased foreign exchange receipts from parcel duties and
other charges. Cash remittances in 1961 and 1962 were probably down to
£15 million, but have
subsequently recovered, reaching an estimated £30-35 million last year.
This range is perhaps unlikely to be significantly excéeded; Indeed as a
result of the cultural revolution and events in China, Femittances
declined in 1966 totalling an estimated £23-28 million for the year.7
Investments by Hong Kong Chinese in the Overseas Chinese Investment
Companies in China probably amount to £1-2 million a year.
Other Invisible Earnings. Expenditures and Economic Advantages
8. The main Chinese invisible expenditures in Hong Kong are for services
rendered by the latter in the fields of shipping, ship
/repairs,
SECRET
repairs, insurance and marketing.
These are gradually falling as China improves her own port facilities,
and extends her direct trading links with other countries. Invisible
earnings are derived mainly from the operations of Chinese financial and
commercial enterprises in Hong Kong; from the annual sale of £1-11⁄2
million worth
Such of water to the Colony; and from a growing tourist trade. receipts
are not, however, large compared with those from trade and remittances.
Deposits received by the 11 communist controlled banks in Hong Kong are
lent to their head offices in China, but the aume involved are subject
to recall at very short notice In June 1956 the figure involved was
about £3 million/.
Conclusion
9.
It is estimated that China's net annual foreign exchange receipts from
the above sources averaged some 280 million in the years 1960-62,
£120-130 million in 1963-64, £170-180 million in 1965, and £200-210
million in 1966 (over a third of China's total earnings of foreign
exchange). Such a rapid rate of increase is in any case unlikely to be
maintained, and from now on Hong Kong's relative importance as a source
of foreign exchange may even gradually decline. However, it could remain
the largest single source of earnings for some years to come, and
continue to perform a valuable role in developing China's commercial
relations with the Free World.
D.E.I.(DIS)
LEVEL AND COMMODITY COMPOSITION OF CHINA'S TRADE WITH HONG KONG
ANNEX
(£ millions)
Commodity Toup
Chinese exports to H.K. 1961 1962 1963 1964 1965
H.K, exports to China 1961 1962 1963 1964 1965
H.K. re-exports to China 1961 1962 1963 1964 1965
Foodstuffa, beverages
and tobacco
27.3 37.2 45.4 63.9 72.5
I
Crude materiala
7.5 6.8 6.9
6.0
Chemicals
1.3 1.4 1.6
2.1
8.2 0.1 0.1 0.1 0.1 0.1
2.6
0.1
0.6 0.5 0.1 0.1 0.1
1.0 1.4 0.8 1.2
0.9
2.4 1.6 2.0
0.2
0.3
Textiles, machinery and
other manufactured
goods
28.2
Other
0.2
30.6 38.4
0.2
0.2
50.8
0.3
61.4 0.3 0.3
0.3
0.4
0.7 0.9
1.7
1.3
1.0 1.4
2.1
Total
64.5 76.2 76.2
92.5
92.5 123.1 145.0 0.5
0.5
0.5
0.8
1.1
5.7
4.8 3.9 2.9
3.4
CYPHER/CAT A
TOP COPY (13
CONFIDENTIALR?
RI
TO PEKING
ROUTINE FOREIGN AND COMMONWEALTH OFFICE
TELEGRAM NUMBER 336
CONFIDENTIAL.
17 SEPTEMBER 1979
(FE)
FEH 2/1
ADDRESSED TO PEKING TELEGRAM NUMBER 306 OF 17 SEPTEMBER REPEATED
FOR INFORMATION TO HONG KONG.
YOUR TELEGRAM NO. 537 AND HONG KONG TELEGRAM NO. 616.
FOLLOWING FROM PARLIAMENTARY UNDER-SECRETARY,
MANY THANKS FOR YOUR ADVICE. WHILE I AGREE THAT WE COULD PROBABLY
COURTER SPECULATION I THINK IT WOULD BE A PITY NEEDLESSLY TO RISK
AROUSING IT GIVEN THAT YOU HAVE BEEN SO RECENTLY IN HONG KONG, MUCH AS I
WOULD HAVE WELCOMED A TALK. I AGREE THAT IT WOULD BE BETTER TO PURSUE
THE ALTERNATIVE OF VISITING THE COLONY AFTER YOU HAVE BEEN TO CANTON
FAIR AND THIS IS AUTHORISED.
DOUGLAS-HOME
FILES
F.E.D.
H.K.D.
P.S. TO MR. ROYLE
SIR L.MONSON
MR. MILFORD
i
CONFIDENTIAL
<
4
NOTHING TO BE WRITTEN IN THIS MARGIN
Registry No.
DEPARTMENT
FE
FED
SECURITY CLASSIFICATION PRIORITY MARKINGS
* Date and time (G.M.T.) telegram should
reach addressee(s)
FILL I
77/9 1829
יו-וי
(Date)
Top Speret Sapris
Emergency
Confidential
Impudiate
Restricted Unclassified
Priority
Routine
Despatched
En Hair Code
[
Security classification
if any
"CONFIDENTIAL
Cypher/
[Codeword-if any]
Draft Telegram to
Addressed to
PEKING
No....
(Date
PIKING
And to:-
306
17/9
telegram No.
(date)....
And 10...........
repeated for information to. HONG KONG
Saving to......
III m'
Repeal to:-
HONG KI
し
Saving to:-
Distribution:
16
HI-H
LL -L
Your telegram No. 587 and Hong Kong telegras
No. 616.
Following from Parliamentary Under-Secretary.
Many thanks for your advice. While I agree
that we could probably counter speculation I think
it would be a pity needlessly to risk arousing it given that you have
been so recently in Hong Kong,
much as I would have selconed a talk.
I agree
that it would be better to pursue the alternative
of visiting the Colony after you have been to
Canton Fair and this is authorised.
Files F.E.D.
H.K.D.
P.8. to
Mr. Royle
gir L. Monson W: Wilford
FEH 2/1
1700/1719
171
AR
13
-
CYPHER/CAT A PRIORITY PEKING
TELEGRAM NO. 587
CONFIDENTIAL.
CONFIDENTIAL
TO FOREIGN AND COMMONWEALTH OFFICE
14 SEPTEMBER 1970
TOP CO
ADDRESSED TO F C O TELEGRAM NUMBER 587 OF 14 SEPTEMBER R F I TO HONG
KONG.
YOUR TELEGRAM NUMBER 301. [303 ?]
FOR WILFORD.
F 2/1
I RATHER DOUBT WHETHER IF I MADE A VISIT TO HONG KONG WHILE
MR ROYLE WAS THERE THE CHINESE WOULD PUT ON IT THE CONSTRUCTION
YOU SUGGEST, I HAVE AFTER ALL BEEN IN LONDON THIS SUMMER
AND WE HAVE HAD A VISIT HERE FROM ARTHUR MADDOCKS AND THERE
WILL BE ANOTHER BY JOHN MORGAN AT THE END OF THIS MONTH.
THE CHINESE WOULD PROBABLY REGARD IT AS QUITE NATURAL FOR ME
TO BE IN HONG KONG WITH MR ROYLE PARTICULARLY SINCE IT IS JUST
BEFORE THE OPENING OF THE CANTON FAIR. ANY SPECULATION
IS LIKELY TO BE IN THE HONG KONG PRESS TO WHICH SUITABLE GUIDANCE
COULD BE GIVEN. IF, HOWEVER, YOU OR THE GOVERNOR OF
HONG KONG HAVE ANY DOUBTS ABOUT THE ADVISABILITY
OF THE VISIT I WOULD, OF COURSE, NOT APT NOT WISH TO PRESS
FOR IT. IN THIS EVENT I HOPE THAT I COULD SPEND
A FEW DAYS IN HONG KONG AFTER MY VISIT TO CANTON AS
THERE ARE A NUMBER OF ADMINISTRATIVE MATTERS CONNECTED IN
PARTICULAR WITH THE NEW OFFICE AND THE RESIDENCE
WHICH I HAD INTENDED TO DISCUSS WITH THE MINISTRY OF PUBLIC
BUILDING AND WORKS ON RETURN FROM LEAVE BUT WHICH SHORTNESS OF
TIME PREVENTED.
MR. DENSON
FILES
F.E.D.
H.K.D.
P.S. TO MR. ROYLE
SIR L.NONSON
MR. WILFORD
+
pla
CONFIDENTIAL
H
CYPHER/CAT A
PRIORITY HONG KONG
TELEGRAM NUMBER 616
CONFIDENTIAL
ADD DOL
TO FOREIGN AND COMMONWEALTH OFF ICE
14 SEPTEMBER 1970
CONFIDENTIAL
ADDRESSED FCO TELNO 615 OF 14 SEPTEMBER RFI PEKING
FOR WILFORD
YOUR TELNO 323 TO PEKING
VISIT BY CHARGE D'AFFAIRES
For 41
WHILE THERE IS CERTAINLY SOME RISK OF UNDESIRABLE SPECULATION ON THE