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On these assumptions (and assuring that the increased production under (b) had an import content of 25 per
cent), the net effect on the visible account would be positive at say £27 million. (Income would have increased because of increased U.K. production, though
in real terms this would be partially offset because domestic production and imports from third countries
could be assumed to be more expensive than the Hong Kong imports displaced.) Taking account of the assumed
£5 million loss on invisible account above we get a balance of payments improvement of say £20 to £25 million. 10. The above analysis yield a range (annual rate) for
the balance of payments effects from minus £55 million
to plus £20-25 million. Some part at least of the U.K.
resources used for exports to Hong Kong would be expected eventually to be re-deployed into uses beneficial to the balance of payments and increased U.K. production
should meet some of the demand hitherto met by imports
from Hong Kong. It is difficult to assess the extent to which this would happen or what time lag would be needed for the necessary adjustments, but there are some grounds
for relative optimism:-
(1) about 18 per cent of Hong Kong's imports (1966)
are re-exported and assuming that imports from
the U.K, are re-exported in roughly this proportion, this gives £10-12 million of U.K.
exports which it should be relatively easy to
re-direct to their ultimate destinations;
Hong Kong is a special case in that over 60 per
cent of her exports to the U.K. are of "low
cost" textiles and clothing, and imports into
the U.I. of similar "low cost" textiles from
(11)
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