SECRET
A Note on the Economic Value of Hong Kong to China
1. Under normal circumstances economic considerations would weigh heavily against Chinese interference in Hong Kong's present status. From the Colony China obtains a large annual trade surplus, most of he remittances contributed by Overseas Chinese, and the important enefits from Hong Kong's entrepot role. The following paragraphs set out the chief facts about China's economic relations with Hong Kong.
Trade with and through Hong Kong
2.
Chinese exports to the Colony in recent years have accounted for over nine-tenths of the annual two-way trade, giving Peking a large surplus (in Hong Kong dollars) ranging from the equivalent of £58 million in 1961 to £168.7 million in 1966:-
Chinese exports to Hong Kong* Hong Kong exports to China Hong Kong re-exports to China China's trade surplus
1961 1962 1963 1964 1965 1966
(£ million)
0.8 1.1 0.96
2.9 3.4 3.4
64.5 76.2 92.5 123.1 145.0 173.1
0.5 0.5 0.5
5.7 4.8 3.9 58.3 70.9 88.1 119.4 140.5 168.7
(a more detailed table showing the composition of trade is given at
Annex).
This surplus, which is regularly converted into sterling, has played a major role in financing Chinese trade deficits with other areas of the Free World with the industrial countries of Western Europe in 1959-60 and again in 1965-66 and with Canada, Australia and other major grain exporters to China.
3. The Colony depends largely on China for supplies of fresh fruit and vegetables, meat, dairy products and oilseeds, and to a lesser extent, for the main staple foodstuffs such as rice, wheat and sugar. Although large amounts of rice are imported from China the principal sources of supply are the South East Asian countries. There is also a considerable market for Chinese textiles, simple machinery and other manufactured goods.
4. From 1962 to 1965 Chinese exports to Hong Kong increased at an average annual rate of 24%. This may be regarded as a period of exceptional growth, during which China was not only benefiting from the long-term expansion of the Hong Kong economy and population, but regaining a market largely lost in the difficult years of 1960-62. Signs of a levelling off appeared in 1965-66, and in the 12 month period July 1965 to June 1966, Chinese exports showed an increase of only 4.2% over the previous 12 month period. This may
/have
(1) Total Chinese receipts from exports to Hong Kong are probably
somewhat higher than shown in the HK Government statistics, since valuation takes place when the goods first enter, the Colony, and therefore excludes the profit margins of Chinese trading corporations operating in Hong Kong.
(2) Re-exports of goods obtained from China (see para. 5) are
recorded as imports from China both by HK and by, the country eventually receiving them.
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