TNAG-1235-FCO40-1548-Future-of-Hong-Kong-1983 — Page 38

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K. B. Bucknall 113

to China rose 21.7 times. The successes of Hong Kong here are the result of Hong Kong possessing, or being able to acquire, goods suitable for China's suddenly changing needs, whereas Hong Kong has always imported what it needed and could acquire from China so that there is little scope for massive increases. It is also the result of Hong Kong businessmen being extremely flexible and ad- justing quickly to changed circumstances, thus being able to re- spond quickly to the new Chinese policies since December 1978. A final part of Hong Kong's successful trade increase to China is the world recession and slow growth in many international markets, which left Hong Kong with spare capacity with which to respond.

It is of interest to examine what Hong Kong is selling to China in greater quantities. Of Hong Kong domestic produce, the story is really more of the same-textiles, including fibres, fabrics and made up articles are the largest item and make up a quarter of all domestic sales to China, while another quarter consists of tele- communications, sound equipment, photographic items and watches and clocks. It is in the re-exports to China that a staggering in- crease in sales of what appear to be luxury consumer and producer goods appears: between 1978 and 1980, watches and clocks in- creased 144 times, electrical machinery rose 259 times, telecom- munications and sound equipment were up 111 times and road vehicles some 94 times.

There has been change in the type of goods sold by China to Hong Kong, with the share of foodstuffs falling sharply, and capital goods, consumer goods and fuels increasing. The shift in type of goods supplied to Hong Kong is an indication of the changing relationship between them: no longer is the aim of China to sell food and other consumer goods to Hong Kong for foreign exchange, but a real interaction is occurring between the two eco- nomies with mutual development.

The second major change in the economic relationship between China and Hong Kong is a sudden improvement in China's balance of trade but with danger of a marked deterioration in the near future. China increased its carnings from U.S.$2,189,000,000 in 1978 to U.S.$3,156,000,000 in 1980 which on the surface, looks to be very healthy. If the differential rates of growth are examined, however, these markedly favor Hong Kong; exports to China in the period rose a phenomenal 21.2 times but imports from China a mere 2.1 times. If this trend should continue unchanged then China would lose its entire trade surplus with Hong Kong by 1984.