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more than the combined total of all Hong Kong's textile exports to the other 8 EEC members.
The UK favours the liberalisation of textile imports, except in those selected areas where damage can be proven, combined with free circulation within the Community. This philosophy is not shared by all members. A Community solution to the problem is being sought. This will probably be in the context of a revision of the GATT Long-Term Arrangement, which at present covers cottons only and which expires later this year. Hong Kong is unusual amongst developing countries in recognising that a new international agreement covering all textiles is desirable, in that it would define the circum- stances in which restraints are justifiable; whereas without an agreement the powerful importing countries would be free to negotiate or impose the restrictions which their highly protectionist domestic textile industries are constantly demanding.
STOCK EXCHANGES
The four Hong Kong Stock Exchanges have seen frenetic activity since the beginning of the year. The Hang Seng index which opened the year at 843 had risen to a high of 1774 by 9 March. The index then dropped approximately 25% within March, and by 11 April a total of 54% to stand at 818. Since that time the Exchange has fluctuated up over 1000 and down to just over 600.
Despite the decline in the index there has been no real evidence of panic selling at any price, but a general shortage of buyers has continued to determine the market. The down- turn is seen as resulting mainly from the large selling orders instituted by leading Hong Kong companies. These have led to a net capital outflow, which in turn has reduced the banks' credit base. This has brought about a reduction of advances and a general tightening of money.
There have been no apparent obvious repercussions on the economy, which remains buoyant. There should therefore be no violent reaction on manufacturing output nor on Hong Kong's vital export trade as a result of stock market uncertainty.
Hong Kong & Indian Ocean Department
24 May 1973
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