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CHAIRMAN (in Cantonese):-Ladies and Gentlemen, we will continue with the meeting which we called to order on Tuesday and that is the debate on the Statement of Aims for 1985.
MR. AUGUSTINE S. K. CHUNG (in Cantonese): Mr. Chairman, the years since 1981 has witnessed two economic crises for the people of Hong Kong, the first one, which lasted for more than a year, being part of a world recession and the second one, which lasted for more than two years, resulting from a lack of confidence. For more than three years, the people of Hong Kong had to bear with high interest rates, depreciation of the HK dollar, tightening of credit by banks and suppliers, serious brain drain, a slack economy and drastic depreciation of property value etc.
With the signing of the Sino-British Agreement, the future of Hong Kong is now settled. While some are happy with the agreement and others are not, it is fortunate that it has been generally accepted, whether or not willingly, by the people of Hong Kong.
There are, however, various responses: some are shifting their factories to Mainland China. To date, the number of factories in Hong Kong of many industries has dropped by more than half, some having closed down and others moved to the Mainland. Consequently many workers have to change to other jobs: some have become engaged in trade; some have been absorbed by factories set up with foreign investments; some have entered the service industries such as hotels and restaurants; others have taken up hawking. It appears the trend will continue and deepen too.
Except for those enjoying quotas, many industries in Hong Kong may be replaced by those in Mainland China. It is only a matter of time and a fact that the people of Hong Kong will have to face.
Hong Kong should try to be a bridge in trade between China and other countries. The people of Hong Kong, while investing in industries in the Mainland, should retain their sales offices in Hong Kong and develop relations with overseas customers. They may make use of relatives and friends living abroad to be their partners in the promotion of overseas trade and opening up of markets for products manufactured in the Mainland. During the past ten years, hundreds of thousands of Hong Kong people have emigrated and if only a small portion of them will act as connexions in the China-Hong Kong-overseas trade, it will prove an extremely valuable bridge. Hong Kong people should grasp the advantage and not miss the opportunity.
Under the present circumstances, there are, however, a number of points that Hong Kong people should pay attention to when investing in the Mainland, otherwise they and those organizations in cooperation with them in the Mainland may incur losses. The following are a few examples which are easy to find-
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(1) While many organizations in China would like to bring in the most advanced production equipment, some of their work force do not seem to be educated enough or have enough operating experience, so much so that they can learn to operate and maintain the advanced, automatic production machinery within a short period of time. Bringing in such equipment at this premature stage will only lead to high wastage of raw materials and products, and rapid depreciation of equipment and parts as well as costs of production that are far above the levels acceptable in the market.
(2) It seems, therefore, that China needs to bring in less advanced or old, semi-automatic production equipment, but the quality of products produced will not be as good and consistent as that produced by the most advanced, automatic production equipment in Europe, U.S. and Japan. These products will be mostly sold in the domestic market which, though really big, will be mainly earning only renminbis. The situation will lead to the following---
(a) The organizations are lacking in foreign exchange to import raw materials, equipment and maintenance parts necessary for production, thus disrupting the continuity of production;
(b) Foreign investors are not able to get hold of foreign exchange, and this greatly lowers their interest in investment.
(3) For products manufactured by imported machinery, the supply of spare parts should be flexible and backed up by a suitable amount of reserve, otherwise in the case of break-down of the machinery, the need to apply for the purchase of replacements will delay or cut short production. It means workers will be receiving their wages without any work to do and goods not be delivered in time, possibly resulting in losses. This is a problem often faced by many organizations in China.
(4) Another problem is the purchase of raw materials which may have to take account of seasonal factors. World demand for some products may be particularly great in a certain season, in which case raw materials and other components may be in short supply, their prices will rise and manufacturers may not be able to get hold of them. Unless the organizations in China understand and are well prepared for such state of affairs, they may not be able to effect production at the peak season, thus missing the opportunity of earning foreign exchange and not being able to continue production. Also, the fact that they cannot deliver their goods in time will damage their reputation.
(5) The quality of raw materials purchased at peak season is very often not consistent, so much so that 10% to 20% may have to be returned. Since goods sold are usually not refundable and it takes a few weeks for them to be changed, manufacturers very often have to purchase an excess of 10% to 20% of raw materials to ensure an adequate supply for their production and the delivery of their goods in time. Due to man-made mistakes or other reasons, goods produced for the first time may not be all up to