17. On the other hand, raw material imports from Taiwan, whose currency depreciated in relation to the Hong Kong dollar in December 1971 and thereafter, increased in price terms, in 1972, by only 2% and, in quantity terms, by as much as 38%. In the first nine months of 1973, when the prices of raw materials from Taiwan increased by 29%, the quantity imported declined by 10%. At the same time, however, the quan- tities of raw materials imported from the United States and the United Kingdom increased by 52% and 13% respectively; and this was largely due to the effective devaluation of the United States dollar in December 1971 and February 1973, and the downward floating of sterling against world currencies, including the Hong Kong dollar, as from the middle of 1972. Although import prices of raw materials from China increased at a very rapid rate in the first nine months of 1973 (by 24% compared with 2% in 1972) there was also a sharp increase in the quantities imported (of 31% compared with 18% in 1972).
18. During 1972 and 1973, then, Hong Kong's manufacturers were switching on a sig- nificant scale from one source of raw materials to another and, in this respect, international cur- rency realignments were of some importance. This switching process reflects the determination of Hong Kong's producers to moderate the rate of growth of unit costs in order to maintain their external competitiveness.
Imports of Capital Goods
19. The rate of growth of unit costs can also be reduced by raising labour productivity through the introduction of new capital equip- ment. Table 8(b) shows that the rate of growth of imports of capital goods, in quantity terms, in the first nine months of 1973 was 21% com- pared with 6% in 1972 and 9% in 1971.
20. It will be seen from Table 8(b) that, in the first nine months of 1973, imports of capital goods amounted to HK$2,561 million (equival- ent to 23% by value of total imports excluding foodstuffs and consumer goods). Of this, about 10% represented textile machinery and parts, and a further 55% was in respect of other in- dustrial machinery and parts.
Imports of Foodstuffs and Consumer Goods
21. The shortage of raw materials on world markets in 1973 was accompanied by a shortage of foodstuffs, and, as can be seen from Table 8(a), import prices of foodstuffs increased by 23% in the first nine months of 1973 compared
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with 5% in 1972 and 3% in 1971. Import prices for consumer goods also increased at a much faster rate in the first nine months of 1973 (by 13%) than in earlier years, but, as can be seen from Table 8(b), in quantity terms, imports of consumer goods increased at much the same rate in the first nine months of 1973 as in each of the years 1969 to 1971; and at a faster rate than in 1972. By contrast, imports of foodstuffs, in quantity terms, in the first nine months of 1973 declined (by 3%).
Domestic Exports
(a) Recent Growth
22. The very rapid rate of increase in the import prices of raw materials must have ac- counted in part for the fact that domestic export prices also increased at a much faster rate in the first nine months of 1973 than in earlier years. As can be seen from Table 9(a), domestic export prices increased by between 6% and 8% in each of the years 1969 to 1972, but in the first nine months of 1973 the increase was 16%. In this latter period, the value of domestic exports increased by 22%, but the increase, in quantity terms, of 6%, was higher than in 1972 and higher still than in 1971.
23. The reduction in the rate of growth of domestic exports, in quantity terms, to 4% in 1971 from 10% in 1970 is largely a reflection of the relatively slow rate of growth of demand in Hong Kong's major markets at about that time (although, as can be seen from Table 9(b), domestic exports to the United Kingdom in- creased at a very rapid rate in 1971, partly as a consequence of the rather high rate of domestic inflation in the United Kingdom in that year and partly because sales of man-made fibre textile products expanded rapidly). This was a principal cause of the slow rate of growth of Hong Kong's gross domestic product in 1971. Since then, Hong Kong's manufacturers and exporters have been faced with difficulties arising from major international currency realignments and world shortages of raw materials, and the rate of growth of the Hong Kong economy has undoubtedly been slower as a result. But the fact that domestic exports, in quantity terms, and hence the gross domestic product, have been growing at an increasing rate since 1971 indicates that these difficulties were being overcome.
24. Another factor that must be taken into account is that, with the gradual proliferation of restraint agreements over the years, some 50% of Hong Kong's exports of textiles and clothing (which themselves make up 50% of total exports) are now subject to quantitative restriction.
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