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5. Roughly estimated, its external trade is four/fifths re-exports of goods de- stined for South China from overscas or from North China, or vice versa. In- creasingly important as local manufactures, not specifically related to shipping, have recently become, they do not account for more than a small proportion of the Colony's business. In the main, therefore, Hong Kong is but a mirror of conditions in China, one quarter of whose trade with overseas it handles. If conditions in China, whether because of general depression or as a result of protective tariffs, are such as to restrict trade, this Colony's entrepot trade must shrink proportionately,
6. In this connection it should be noted that Hong Kong Trade Statistics are far from satisfactory. To begin with they are intermittent and, moreover, there was a hiatus between the years 1925 and 1930 during which period no figures were re- corded. Even now it is not possible to draw positive conclusions from the figures available for the reason that they are figures of entrepot trade and there is no indication what percentage relates to local consumption or to manufactures in the Colony. The same caution should be given in respect of figures relating to popu- lation. The difficulties of census taking in the East are notorious and Hong Kong is no exception in this respect, but for all that, the census returns are a mine of valuable information and it is a pity that so long a period as 10 years intervenes between each successive census.
7. It would, of course, be incorrect to say that all the goods handled in Hong Kong, except the small quantity retained for local consumption, are proceeding to or from China. The excellent shipping and warehousing facilities offered by the Colony, together with its geographical position as a terminal port, place it in a very favourable position to perform entrepot and transhipment services on behalf of other Asiatic countries besides China. This is an important factor in its prosperity and one which should be encouraged, but the fact remains that the real basis of the Colony's commercial existence is, and must continue to be, the handling of the trade of China.
8. This very important function which Hong Kong renders in effecting the ex- change of South China's products for those of overseas countries does not proceed from the mere fact that Hong Kong possesses an excellent harbour but rather from the fact that between Shanghai and Indo-China there is no other deep sea harbour having at the same time convenient access to the interior as well as safe anchorage and ellicient equipment and facilities. Goods in transit to or from China must in the main be conveyed in deep draught ships and they must at some stage be discharged into smaller coasting ships or into warehouses ashore. As long as Hong Kong offers peculiar facilities for this operation so long will it continue to flourish by performing an essential service to the benefit of both China and the Colony.
9. The volume of this trade between China and overseas, as will subsequently be shown, has shrunk considerably in recent years. It is subject to two main in- fluences neither of which can be affected by any policy taken locally. If for reasons of world impoverishment or high tariffs elsewhere, China cannot market her pro- ducts, follows that she cannot afford to import. and, as her foreign trade must be reduced, Hong Kong must suffer proportionately. Of equal importance is the industrial development of China. This development is proceeding apace partly as the result of economic evolution and partly in consequence of China's recently adopted policy of economic nationalism. Inevitably, therefore, China's trade will eventually be transformed and though her imports may gradually increase they will tend to consist of capital goods such as machinery and technical equipment rather than of consumable goods themselves.
10. It is, however, reasonable to anticipate that although the nature of the trade will change, Hong Kong will probably for a long time to come continue to fulfil its natural role. The arbitrary imposition of tariffs and taxes may prove irksome to the intermediary merchant in the Colony as these cause sudden dislocations of business. The direct importer of foreign goods in Chinese territory is, however, under the same disability. There is no reason to fear that local merchants will lack enterprise and fail to adapt themselves to altered circumstances, or that the port will not be provided with the shipping facilities and connections with the interior necessary to maintain its position as the ocean gateway of Southern China.
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11. So great was the predominance in Hong Kong of shipping interests that for many years its industrial activity has been in the main connected with shipping requirements and has concentrated round ship-building and ship repairing. these activities had to be on a scale commensurate with the importance of the port they quickly attained proportions for a long time unequalled in the Far East. They must obviously continue to constitute the nucleus of Hong Kong's heavy indus- tries as they are essential if the Colony is to discharge its primary function as an international trade centre. It is important to observe, however, that there is con- siderable industrial activity apart from shipping. The factories which have been established are largely of recent growth and are not of the heavy industry type. The Commissioners surveyed these recent industries at some length and came to the conclusion that they had a definite future and that their development should be encouraged. It is true that the problem of marketing the products may be accen- tuated by tariff and quota restrictions, but Hong Kong as a free port has advantages. in respect of manufacturing certain standard articles at any rate, which may well set off the obstacles to be overcome, and it may also be possible to explore the possibilities of bilateral agreements with natural markets.
12. Further, the Colony possesses an asset in its attraction as a residential centre and as an holiday resort. A large number of wealthy Chinese who have retired from overseas or from the interior reside in Hong Kong where they acquire property and domicile themselves and their families. This class undoubtedly con- tributes valuably to Hong Kong's economic well being. The number of Chinese workers in Hong Kong who maintain their families here is increasing and the tendency should be encouraged. The Imperial forces maintained here contribute conspicuously to the Colony's prosperity. The money spent locally by visitors whe- ther foreign or Chinese must be considerable and with a definite measure of official encouragement local amenities might be improved, visitors might increase in num- ber and might be induced to prolong their stay.
13. While it is recognised that land available for agriculture is limited. it is felt that there must be a distinct possibility of the adoption of improved methods of cultivation and schemes of land reclamation with Government support. This would tend to render the community less dependent on outside sources of food supply. This is particularly important at a time when the earnings of the Colony as a whole have shrunk so much that in order to redress the economic situation the Colony should endeavour to spend as little as possible outside its borders. The proximity of a great urban market for produce does not seem to have stimulated the farming community to the extent that might have been expected under a progressive govern- ment. A Committee has now been appointed to explore the possibilities of develop- ment in this direction.
14. A further potential source of wealth would appear to be the Colony's fishing industry. With the introduction of more modern methods adequately sup- ported by capital the possibilities of development are so far as is known unlimited and the industry might well attain such proportions as to provide the Colony with an important export. In any event if development merely increased the local con- tingent of food supply it would, as with intensive agriculture, reduce the Colony's external expenditure on food and improve its economic position.
15. The main problem before the Commission was to make recommendations for the alleviation of the present position and for the improvement of the trade of the Colony. The foregoing brief analysis of the component factors of Hong Kong's prosperity provides the background against which this problem has to be studied and reveals immediately the limitations to which our recommendations must be sub- ject. It is obvious that we cannot recommend any alteration in the free port status of the Colony as a whole. Not only is this status essential to the entrepot trade, which is the foundation of our position as the Clearing House of South China, but also we must admit that Hong Kong is too small an unit to absorb the output of local industry or to have any great bargaining value in tariff negotiations. With these limitations therefore, it might be argued that nothing of any significance could be done, but that is an argument with which we are not prepared to agree.
16. It should be realised that China alone is more important from the point of view of the Colony's trade than the rest of the world combined and it may well be
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