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Appendix "B".
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 Ilong 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 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
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activities, there is also every reason to believe that with more stable conditions imports of capital goods, i.c., plant, machinery and equipment of various kinds necessary for industrial development, will increase. Were it to be possible for China to develop to a much greater extent her fundamental industry of agriculture and thereby obviate the necessity of importing large quantities of foodstuffs this develop- ment would ensue more rapidly. Sudden change cannot be desired nor expected, but while it is generally realised by most economists that in order to cause the least disturbance during change the movement must be gradual, according to plan, and each step consolidated, China has by the rapid imposition of high tariffs handicapped the importation of foreign goods while not yet having made adequate provision for their replacement by local production.
13. Enough has been said above to show that the existing depression in Hong Kong has its sole cause in external factors. We are suffering from the world wave of depression and as far as that is concerned Hong Kong can only wait patiently for the turn of the tide. A partial cause of our depression is that China has also suffered a decline in trade with a consequent decrease in revenue and the partial result that her Government has endeavoured to maintain revenue by increasing taxation on imports. China has also, although as yet but poorly industrially developed, adopted in common with many other countries the principal of economic nationalism which is tending to narrow the volume of international trade, and to allow it only under high costs when there is any chance of the commodities concern- ed being manufactured within the country.
Chapter V.
HONG KONG'S POSITION VIS-A-VIS CHINA.
1. In view of the circumstances adumbrated above it has been considered by some that nothing can be done to alleviate conditions in Hong Kong and that we can only wait for a revival of world trade. We have asked ourselves whether a revival of world trade will necessarily bring returned prosperity to the Colony. The answer we have made is that while Iong Kong must somewhat participate in any such improvement it is not, in view of the rising industrial activity and high tariffs of China likely to get very far without a much closer friendly economic contact with China and/or a closer economic contact with the rest of the British Empire, The second point will be dealt with in the next chapter. Here we are concern- ed with Hong Kong's position vis-a-vis China.
2. Hong Kong in natural economic circumstances is dependent on China for a great deal of its welfare. A considerable portion of its daily food comes from China and its main trading business is with China. On the other hand Hong Kong is economically of great value to South China inasmuch as it is the great sea-port through which goods flow to and from the rest of the world, a financial centre, and a storehouse of great value to trade as goods stored in Hong Kong do not have to bear duty charges. A further and very striking point regarding this Colony in its relationship to China is that its population is 97% Chinese and that the majority of this Chinese population has its roots in the South China provinces, mainly Kwang- tung.
3. A discursion here on the population of Hong Kong may be of some interest. Prior to the British occupation of Hong Kong the population ashore and afloat does not appear to have exceeded a total of 2,000 persons. In 1842 this had increased to over 15,000 persons about 12,000 of whom were Chinese. In 1871 the popu- lation was about 124,000 and in 1921, 50 years later, it had increased to over 600,000. The last census was taken in 1931 when the total population was re- corded as being, to the nearest round figure, 850,000. The actual increase in the population in the decade 1921-1981 of 215,000 people was larger than in any pre- vious decade though the rate of increase was less than that of the previous decade being only 34.44% as compared with 36.87%.
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