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Economic
5
Our exports to Hong Kong in 1967 were £62 million f.o.b. (of the same order as our exports to Japan), a proportion of which goes on to other markets through Hong Kong. If the Hong Kong market was lost to us, we might save what we could sell direct in the markets hitherto supplied through Hong Kong, but clearly a lot
of these frustrated exports would be difficult to sell elsewhere
at first. 6. Our imports from Hong Kong in 1967 were £89 million c.i.f., of which £34 million was in clothing and £18 million in textiles. If these imports were totally stopped, there would be some substitution, particularly from other Eastern suppliers, of all types of goods except textiles. We derive some economic advantagein being able to obtain cheap supplies from Hong Kong. Their loss might lead to a rise in prices of certain goods in the United Kingdom but there would, of course, be relief from the embarrassment (mainly political) caused by the competition of Hong Kong exports with our textile and certain light industries.
7。
Our investment in Hong Kong and our earnings from such invest- ment is an area in which figures and facts are subject to very considerable doubt. Direct investment may be as high as £40 million and portfolio investment about the same figure, making a possible total of about £80 million. Earnings of profits and dividends are comparatively modest about £10 million a year.
8. Hong Kong is a member of the sterling area and keeps its reserves in sterling. Its sterling balances are of the order of £350 million. In practice the Colony has been granted wide dispensations from the ordinary rules of membership. Special arrangements have been made to enable the entrepot trade to continue which involve permission for a free market in U.S. dollars. No precise balance of payments figures are available for the Colony but it seems unlikely that, over the years, it has run any pronounced overall balance of payments deficit or has therefore been a drain on the sterling area foreign exchange reserves. Hong Kong's adverse balance of visible trade with the world has been financed mainly by income from invisibles including tourism, shipping, banking and commercial services and through the flow of capital funds from abroad (mainly from overseas Chinese e.g. in the
U.S.A.
9. Apart from the cost of maintaining military forces in the Colony, Hong Kong is entirely self-supporting. But it could become a major liability in the event of a trade recession or of a crisis of confidence involving the cessation or withdrawal of external investment. It would seem that such a liability must inevitably arise as its economy begins to run down towards the end of the lease in 1997.
/Communications
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