TNAG-1053-FCO40-1303-China-and-Hong-Kong-Working-Group-1981 — Page 58

5.

an

Hong Kong's imports from China (her second largest supplier) continue to grow eached £1427 million in 1979. During the first eight months of 1980 they rose even more rapidly by 47% compared with the same period of 1979. Domestic Hong Kong exports to China also grew dramatically by 643% to £57 million in 1979.

-

Triangular Trade: China/Hong Kong/UK

6.

Perhaps more significantly Hong Kong's re-exports to China of goods imported into Hong Kong from the rest of the world rose by 514% to £124 milllion in 1979 and in the first eight months of 1980 have risen by a further 244% to £233 million to make China the major recipient of Hong Kong's re-export trade. Taiwan, Japan and the United States were the main countries of origin for these re-exports to China. Goods of UK origin were valued at £4.3 million in 1979 and £3.5 million in January to August 1980.

7.

With the setting up of the Special Economic Zones in the provinces adjoining Hong Kong, the way has been opened for a number of joint ventures between Hong Kong companies and the People's Republic. According to Chinese estimates, 2,000 commercial agreements were signed during 1979 involving some kind of contractual co-operation. In Guangdong Province there are now some 1,200 co-operative ventures valued at £105m. The great majority of these deals - perhaps 80% - are with purely local Hong Kong interests, and are largely small-scale processing contracts (generally with the foreign party providing machinery in return for a reduction in the processing fee) or straightforward compensation trade arrangements. But there have also been a handful of more valuable joint equity investments in China involving Hong Kong interests, including one of approximately £8.5m.

8. Both Guangdong and Fujian have opened provincial commercial representation offices in Hong Kong and a branch of the China International Trust and Investment Corporation has been set up in Hong Kong specificially for the purpose of bringing together foreign and Chinese partners for co-operative ventures.

9. Thus, for any country, Hong Kong now offers opportunities as an entry point into China. The UK enjoys three particular advantages in this context:-

i)

the administration of Hong Kong is British, the commercial language is English, business is govered by a British-based commercial law and there are long traditions of trade with Britain;

ii) there is a well established British Community, including major trading

agency groups and banks;

iii)

the Chinese fully recognise Hong Kong's British connection and have proved willing to discuss future co-operative planning, particularly with regard to the opening up of Guangdong Province. Already, a number of British companies have won substantial Chinese business through a presence in Hong Kong. Hong Kong, for her part, welcomes Sino-British co-operation in the development of southern China and there is a growing community of interest on which we can and should

build.

Outlook

10. There is naturally speculation about the future of Hong Kong. The then Chinese Premier, Hua Guofeng, and the then Vice-Premier Deng Xiaoping have recently made a special point of publicly reassuring investors about the future of their investments in Hong Kong. The Chinese Government made it clear that, because of the important role they believe Hong Kong can play in their modernisation programme, they have an interest in maintaining the prosperity and stability of the

-2-