HONG KONG COUNTRY · ASSESSMENT
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SCHEDULE IV
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The Crowm Colony of Hong Kong was ceded by China to Great Britain in 1841. further convention signed in Peking in 1898 a small area of immediately adjacent nainland China known as the "New Territories" was leased to Britain for 99 years. The total area of the territory is 404 square miles and the population now approaches 4 million. Per capita income in 1976 was about £1,250.
The economy is based on free enterprise and free trade and benefits from an industrious labour force, modern transport facilities and a favourable geographical location with access to major markets for the products of Hong Kong's modern export orientated industries.
The Colony's total exports now approach US$10 billion but with imports at a higher level in 1977 the traditional deficit on foreign trade widened to about US$300m. Export performance was affected by reduced demand for textiles - Hong Kong's major industry and this industry is likely to remain a cause for concern, given increasing world protectionalism, a low economic rate of growth in traditional markets and the growing competition from other producing countries eg South Korea.
However, tourism which is Hong Kong's second most important industry as regards foreign exchange earnings brought in about US$900m last year and more than covered the deficit on trade. Hong Kong also earns a favourable balance from banking, shipping, insurance, investment and private remittances from abroad.
Trade with the United Kingdom is substantially in Hong Kong's favour - the surplus over the past three years totalling £568m.
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The public external indebtedness is very low and whilst we have no figure for foreign exchange reserves we believe these to be quite large. The HK has recently weakened folloring the widening of the trade deficit in 1977 but has appreciated against all major currencies since the beginning of 1972.
The internal financial position is sound. A record budget surplus was announced for the 1977/78 financial year and fiscal reserves are maintained at a reasonable level and are likely, to remain so despite the large amounts of public expenditure planned.
ECGD regards Hong Kong as a good credit insurance risk although our experience on major project business has been limited. Our underwriters will be giving careful consideration to the buyer risks and the question of loan security. The £1.2 billion commitment proposed involves a repayment of £125m in the peak year of maturities (see Schedule II) which represents about 2% of Hong Kong's current total export earnings. Thus as far as the transfer risk is concerned we would consider this to be acceptable. There remains the political risk factor. It is difficult to assess the prospects over such a long period since so many factors can affect the position. Most of our commitments will have been repaid by the early 1990s but in any event we would expect any renegotiation of the lease on the New Territories to be conducted constructively, since we believe the Chinese have a real interest in the continuing prosperity of Hong Kong and as an important centre for China's trade with the West.
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