TNAG-0754-FCO40-958-Threat-to-Hong-Kong-1978 — Page 27

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China

export trade has diversified in recent years so her dependence on Hong Kong

for the production of foreign exchange has declined. Table I calculations are based

on a net figure for "invisible" earnings; if $600-700 million is assumed then, in

1976, the total foreign exchange proportion earned from Hong Kong rises to 35-37%.

Hong Kong's contribution is therefore roughly one third of China's annual foreign

exchange earnings. The importance of Hong Kong is perhaps more clearly demonstrated

by Table II which shows how the earnings from Hong Kong go towards covering the

usual deficit China has in its trade with the major non-communist industrial

countries. In 3 of the last 5 years the net. Hong Kong earning ha

out or amply covered this industrial trade.

TABLE II

cancelled

THIS IS A COPY

THE ORIGINAL HAS BEEN RETAINED IN THE DEPARTMENT UNDER

BENEFIT TO CHINA OF HONG KONG'S FOREIGN EXCHANCE EARNINECTION 3 (4) OF THE

PUBLIC RECORDS ACT 1958

(US$ billion)

1972

1973

1974

1975

1976

China's trade deficit with

major industrial non-

0.6

1.5

2.6

2.6

1.3

communist countries

Foreign exchange earnings

from Hong Kong (net)

1.2

1.5

1.8

1.8

1.9

TRADE

1977

15%

5. Trends. The value of Chinese exports to Hong Kong has grown at an average of about

annually since 1962 although growth has not been steady and indeed fell during the

Cultural Revolution, In the past few years the export growth pattern (in US dollars)

has been distorted by the world-wide price inflation and the appreciation of the

Hong Kong dollar against the US dollar. Hence between 1972 and 1976 Chinese exports

increased by 131% in value but only 33% in volume as measured by the export quantum

Furthermore the increase was erratic with volume falling in 1974 due to the

effects of the 1974-75 recession in Hong Kong. China's increasing use of the

entrepot function of Hong Kong is also evident from Table III; re-exports as a

index.

proportion of total Chinese exports reached their highest proportion ever (28%) in 1976

and 1977. This growth in Chinese re-exports in 1976 reflects the dramatic expansion by

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