TNAG-0123-FCO40-159-Future-of-Hong-Kong-1971 — Page 43

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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.

We

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; in the case of textiles, which are subject to

quantitative control, such substitution could be regulated.

derive some economic advantage in being able to obtain cheap

supplies from Hong Kong. Their lossmight 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

investment 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 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 very large

of the order of £350 million. It is in our interest that

Hong Kong's reserves should continue to be held in sterling and

for the years immediately ahead this has been ensured in the

sterling agreement. In view, however, of Hong Kong's special position as a trading and entrepot centre special arrangements permitting a free market in U.S. dollars have been made. 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.

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