XN000022-1995-07-19 — Page 99

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Reply:

The Hong Kong economy indeed experienced a deterioration in visible trade deficit over the course of 1994 and in the first four months of 1995. The most significant factors leading to this deterioration were a sharp rise in import requirements for manufacturing production and infrastructural construction, as well as a greater intake of machinery and equipment for capacity expansion and productivity enhancement. Also, the visible trade deficit situation was exacerbated by changes in external conditions, specifically the global recovery in demand causing an upsurge in world commodity prices, a weakened Hong Kong dollar along with the US dollar, and high inflation in China, which led to a continued deterioration in the terms of trade (i.e. import prices rising faster than export prices) for Hong Kong in recent quarters. Thus the enlargement in visible trade deficit in recent quarters was more a consequence of increased demand for production and investment, rather than one of increased demand for consumption. This should underpin overall economic growth in the coming months, as well as help to raise productive capacity generally.

Also noteworthy is the fact that Hong Kong generally has run a deficit on visible trade, but the invisible trade account has been consistently in surplus. As a result, the combined visible and invisible trade account has maintained an overall surplus, except for some earlier years. In 1994, the surplus on invisible trade was reckoned as again more than enough to offset the visible trade deficit, thus giving a small surplus on the combined account. Although figures on invisible trade for the first few months of 1995 are not yet available, the accelerated growth in visible trade and hence trade-related services, continued surge in transhipment, and steady rise in incoming tourists suggest that a further notable increase in exports of services should have been attained. Accordingly, the surplus on invisible trade in that period should still be able to offset substantially the deficit on visible trade.

End/Wednesday, July 19, 1995

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