TNAG-1036-FCO40-1286-Future-of-Hong-Kong-1981 — Page 162

vestment along similar lines to the "free trade zones" or "export processing arena" established by a number of other countries (eg tax-holidays, relaxed import and export duties, low cost labour and land for factory construction etc) are applied. In 1979 144 out of a total of 180 contracts agreed for foreign investment in Shenzhen were with Hong Kong companies. The majority of the projects are small scale, producing from raw materials and machinery supplied by the overseas partner, such items as clothing, shoes, gloves, handbags, plastic goods, radios and cassette

recorders for sale outside China. SEZ wage rates have been set at levels below those of Hong Kong and Macao, though above those in China, and the low tax rate of 15% together with the opportunity for tax holidays of 3 to 5 years compare favourably with investment conditions in other S E Asian areas. Within Shenzhen SÜZ the

Shekhou area bordering Deep Bay is to be developed by China Merchants Steam Navigation

Co, a Hong Kong based Chinese firm, as a special industrial area. Foreign invest-

ments exceeding a total of US$150 million have already been negotiated for the

production of containers, a steel mill, an aluminiumware plant, shipbreakers yard

and a flour mill. Land reclamation at Shekhou is well advanced and port, oil storage

and power generation facilities are under construction.

Transport Links

6. More evidence of the impact of China's new economic initiatives on Hong Kong

can be seen in the growing transport links between the two. Air and sea freight

and passenger services have recently been established between Hong Kong, Shanghal

and Guangdong Province. The value of Hong Kong's deep water port and container

facilities to China can be seen in the opening of new freight feeder services from Guangzhou (Canton) and Shanghai to Hong Kong, for transhipment to urope, the Middle

East, the USA and Australia. Rail services between Kowloon and Guangzhou have

recently been improved and a new passenger coach service between these two points

opened in September. Development of Shenzhen SEZ is expected to generate significant

additional cross border passenger and goods traffic.

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UK CONFIDENTIAL

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