XN000022-1997-04-04 — Page 4

2.

Impact on HK on revocation of China's MFN status in the US

The Government has completed a broad assessment of the potential impact on Hong Kong's economy if China lost its Most Favoured Nation (MFN) trading status in the United States.

The Acting Secretary for Trade and Industry, Mr Tam Wing-pong, revealed today (Friday) that should China's MFN status be revoked, Hong Kong might suffer a reduction by 32 to 45 per cent (or HK$73 to 103 billion) worth of re-exports from China to the US.

Together with other related trade flows, there might be a reduction of 6 to 8 per cent (or HK$174 to 246 billion) worth of Hong Kong's overall trade, a loss of around HK$24 to 34 billion in income and around 61,000 to 86,000 jobs as a direct impact.

The Government's estimates also show that Hong Kong's GDP growth rate might be curtailed by 2.0 to 2.8 percentage points (or by around two-fifths to three- fifths from its trend rate of 5 per cent in real terms) in the year when the effect of loss of MFN is fully felt.

"There would be a further loss in income and jobs if China cut back on its imports from the US as a result," Mr Tam said. "Manufacturing investments and other production arrangements by Hong Kong and foreign companies in China would also be adversely affected."

Mr Tam is also concerned that Hong Kong's role as a gateway to China would be undermined, thereby affecting longer term growth potential and business confidence in Hong Kong.

On the outlook of MFN renewal this year, Mr Tam envisaged that there would be a lively debate in the US Congress.

"The situation is complex this year as Hong Kong's transition will likely be in the limelight when Congress debates on China's MFN renewal," Mr Tam said. "The climate is also affected by the overall Sino-US relations, but we shall argue strongly that the MFN issue should not be linked with non-trade issues.

"1997 is a more critical year for Hong Kong's development than any since the annual MFN renewal debate began. A steady economy is vital for our successful transition. We will do our utmost to get our message across." Mr Tam added.

End