TNAG-1051-FCO40-1301-China-s-economic-relationship-with-Hong-Kong-1982 — Page 50

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CONFIDENTIALE

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UK EYES Å visit to FK+ Chin

TIN'S CONCITO RIATTONA UTTH HONG KONG

A

China's economic relationship with Hong Kong is close and highly

profitable to China; it earns her a third of all her foreign exchange earnings. Apart from direct trade with Hong Kong, she has a substan-- tial entrepot trade through the Colony and substantial investments in various commercial and financial enterprises. Since 1978, to help promote her exports, she has been involving numerous Hong Kong businessmen in the development of industry inside China, increasingly in counter-trade projects in the special economic zones established in adjacent Guangdong Province.

2. Trade with Hong Kong now accounts for 15% of China's total trade and Hong Kong is China's most important market. China provides over one-third of Hong Kong's fresh water, nearly half of her imports of foodstuffs and 30% of her imports of petrol cum products by value. The use of Hong Kong also enables China to maintain a clandestino

trade with Taiwan and South Korea.

3.

China has substantial investment in all sectors of Hong Kong's economy. China controls, either through direct ownership or control of sufficient equity, banka, investment companies, shipping companies, manufacturing firms and retail outlets. Chinese investment companier have major stakes in variety of construction projects.

a

CU

The thirteen communist banks operate over fifteen

per cent of

With the new branches in Hong Kong. flexible attitude prevailing in Peking they are permitted to under- take any banking activity as long as it is profitable. The shipping companies operate about one-fifth of China's international merchant fleet and purchase second-hand vessels on China's behalf.

4.

Some of China's earnings from the commercial activities deferibad are retained by the communist banks in Hong Kong for future invest- ment. llowever, a large proportion is converted into other curren- cies and placed at the disposal of the Bank of China in Peking. Total convertible currency earnings derived by China in Hong Kong account for a third of China's total foreign exchange earnings. ratio do cxpected to be petrined over the next few years and Ab assessed that China de unlikely to initiate any action which would damage this profitable relationship.

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Sept 1981 DI 75C

CONFIDENTIAL..

UKEYES A