TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 37

5

as a whole has tended to be the same as the rate of

growth of exports of textiles which still represent

about 50% by value of total domestic exports.

9.

(c) Fiscal Policy

But manufacturing industry has flourished in

Hong Kong not simply because of the discipline which

direct exposure to world competition has provided; the

Government's fiscal policy has played a critical role.

The lack of tariffs and other restrictions on imports

and exports has been paralleled by an absence of controls

on the movement of capital and has been complemented by

low rates of direct taxation. The fact that capital has

been able to move freely into and out of Hong Kong

has in itself made investment in Hong Kong very attractive.

Low rates of direct taxation, and the limitation of the

charge to profits and earnings arising from activities

within Hong Kong itself, have acted as a major stimulant

to investment in Hong Kong, both to investment which is

of an internationally mobile nature and to purely domestic

investment; and they have also been a powerful influence

through their incentive effect on the supply of effort.

10. However, although the contribution of the

manufacturing sector to overall economic activity in

Hong Kong has increased substantially in the last twenty

years, and although the entrepot trade (which provided the

original rationale for Hong Kong's free port status)

is now relatively less important, there is still little scope

/in Hong Kong.....