TNAG-0735-FCO40-939-Policy-objective-for-the-developing-of-Hong-Kong-in-the-1980-1978 — Page 73

one hand, and increases in the prices of plant and machinery, on the other. As regards the former, the labour and material cost index shows signs of accelerating: in the first eight months of this year, the index was 11.8% higher than in the

same period last year (and the prices of completed accommodation

have certainly increased faster than this); whilst the index

for the whole of 1977 was 9.9% higher than in 1976 and that for

1976 was only 3.7% higher than in 1975. However, as regards the latter, the unit value index of imported capital goods was only 4.4% higher in the first eight months of 1978 than in the

same period last year and this is actually lower than the

increase in the whole of 1977 over 1976 of 5%.

(d)

Prices of imported raw materials

and semi-manufactures

8.

As the direct and indirect import content of the gross value of manufacturing production is well over 50% (the remainder

being the Hong Kong value added content), the prices of imported

raw materials and semi-manufactures are critical to our ability

to maintain the competitiveness of our exports vis-a-vis

domestic and third country suppliers at given profit margins and wage levels. The unit value index of imports of raw

materials and semi-manufactures was only 1.1% higher in the

first eight months of this year than in the same period last

year. This represents a sharp deceleration compared with the

increase in the whole of 1977 over 1976 of 3.2% and in 1976 over

1975 of 6%. Of course, our competitors have enjoyed the same

slowing down in the rate of increase in world prices of these

products and, to the extent that the exchange values of their

domestic currencies have not depreciated as much as the Hong

Kong dollar over the past 18 months or so, they have acquired

a relative cost advantage over us in respect of the imported

inputs in their exports.

4

/(e)

Wage