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the world with competition from smaller producers and sellers who, not having incurred the expenditure of creating an extensive marketing organisation, are in a position to market their products at prices which are definitely unremunerative so far as the major companies are concerned.
"B." The charges in this Colony do not represent more than a reasonable return on money expended by the companies and should not in fairness be compared with charges in areas where cut-throat competition has forced down prices to an uneconomic level.
C." In support of the first statement in "B" it must be remembered that physical conditions in Hong Kong are such as to necessitate a certain amount of duplication of plant and equipment and to increase overhead expenses generally without securing a corresponding return in the shape of increased sales. The total monthly trade in petrol in Hong Kong averages approximately 310,000 American gallons, as compared with 1,000,000 American gallons in Shanghai, and an even larger quantity in Manila. This difference in turnover means a very much higher overhead, especially since the distribution facilities provided in the Colony are designed to cater for a much larger volume of trade. Rents, rates and labour are more expensive in Hong Kong than in most of the areas mentioned above, while regulations regarding the provision of special and often very expensive forms of fire fighting appliances are strictly enforced.
tomers.
"D). The figures given in the summarized table represent the approximate gross returns to the Oil Companies and not the nett returns. No allowances are made for dealers' discounts and for rebates granted to important commercial cus- Here again the restricted gallonage in Hong Kong plays an important part. Dealers sales are smaller and their discounts from the Oil Companies correspondingly larger than in areas where petrol dealing is a more profitable business. It has been estimated that the average nett return to the Oil Companies is 68 cents per Imperial Gallon, as opposed to the gross return of 85 cents.
E. Finally, it was pointed out that the cost of motor fuel represents only a small part (roughly 20%) of the total cost of operating trucks and automobiles. A reduction in the price of petrol would, therefore, have but little effect in re- ducing the operating costs of local industries, whereas the aggregate loss to the Oil Companies would be considerable.
4. There can be no question but that the geographical condition of this Colony, together with the restricted gallonage, must tend to render working costs higher and profits less. Nevertheless we are not entirely satisfied that in the existing circumstances Hong Kong is not being made to shoulder some part of the burden imposed on the Companies by competition in other areas. It is, for example, re- markable that petrol which has been stored in Hong Kong and carried from Hong Kong to Canton should, in spite of additional freightage and other charges, be sold at a cheaper rate in that city than in Hong Kong itself.
5. Undoubtedly the most potent factor in the reduction of prices is open com- petition and it must be admitted that, so far as this Colony is concerned, this factor is largely non-existent. While we would not. at the present time, advocate any measures which might tend to reduce prices to uneconomical levels, we find it difficult to credit that the large Oil Companies are selling at a loss in the above mentioned markets where prices are so much lower than in Hong Kong and, if this is indeed the case, we find it still more difficult to believe that Hong Kong sales could offset such losses.
6. We would remind those Companies that the possession of a virtual mono- poly carries with it a duty to the community which should not be overlooked and that it is in their own interests to ensure, by charging reasonable prices, that the publie of Hong Kong will not welcome with enthusiasm the advent of fresh com- petitors.
7. In particular we would urge on them the propriety of passing on to the consumer with the least possible delay the benefits received from an appreciated cur- rency. We note with pleasure that since we began to consider this subject the price
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of petrol has been reduced by ten cents a gallon. but in view of the fact that the Hong Kong dollar has been rising steadily for the past six months we do not feel that this reduction should be regarded as more than a step in the right direction. We appreciate that daily fluctuations in prices are not practicable or desirable, but we do consider that a somewhat less conservative policy might be pursued with advan- tage in the light of a rising exchange.
("c") HONG KONG, CANTON AND MACAO STEAMBOAT COMPANY, LIMITED.
1. A comprehensive Memorandum was received from the Hong Kong, Canton and Macan Steamboat Company. Limited, setting out various problems and difficulties with which this Company is forced to contend. Most of these problems are not capable of solution in this Colony and we feel that we can take no useful action he- yond transinitting them to Government for sympathetic consideration.
2. There is, however, one complaint that must be referred to here. It is alleged that during the past three years, and especially during 1934. the Steamboat Com- pany has suffered heavy losses in respect of its passenger traffic owing to steadily increasing competition by the Kowloon-Canton Railway.
3. This competition is described as "unfair" on the grounds that the Railway is a Government subsidised concern supported by the revenues of the Colony to which the Steamboat Company as a taxpayer is forced to contribute.
The
4. A railway, whether Government or privately owned, is a public utility con- cern and as such cannot help but compete with businesses of a similar nature. Kowloon-Canton Railway for a period of eighteen years failed to cover its working expenses, not through maladministration but owing to circumstances in China, etc. If the Hong Kong taxpayer is to be regarded as a Railway shareholder then in equity he should be entitled to recover his losses when the opportunity to do so occurs.
5. Moreover, in our opinion, competition in transport stimulates trade provided that the rates charged are compatible with business efficiency. The criterion of tran- sport efficiency is the "Operating Ratio", ie., the ratio between working expenditure and gross receipts. So long as a decrease in rates and fares leads to an increase in revenue it is a benefit both to the public and the transportation company. Any decrease which did not produce this result might, if maintained, be open to the ac- cusation of unfair competition, but we have evidence that the Railway administration has always aimed at decreasing the ratio and any experimental reductions in fares which have proved unremunerative have been altered without delay.
6. In these circumstances we find ourselves unable to endorse the complaint of the Steamboat Company that they are suffering from unfair competition by the Rail- way, or to recommend that any steps be taken to eliminate this competition which we regard as beneficial to the Colony as a whole.
Chapter XVI.
CONCLUDING CHAPTER.
1. The Commission soon shed any illusions which they may have entertained regarding the possibility of discovering any easy road to recovery and approached their task free from any economic bias. It became obvious from the outset that factors beyond the Colony's control dominated the situation. In fact, the task from a practical point of view resolved itself into a modest enquiry into the Colony's activities, and resources, and the problem of their conservation. There is little scope in a Colony like Hong Kong, having no natural raw products and but a small domestic consumption, for the ambitions scheines of economic reconstruction or national planning which have become the modern fashion.
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