9% in real terms. For example domestic exports to the United States and to China grew by 16% and 28% respectively in real terms. Over the same period, re-exports grew by 12% in money terms, or 68 in real terms; while imports grew by 11% in money terms, or 4* in real terms. The visible trade gap thus
narrowed from
from 14% in the first half of 1982 to 128 in the first half of this year - an improvement, let it be noted, of
14%.
4.
Other things being equal, the narrowing of the visible trade gap should result in a strengthening of the Hong Kong dollar. But the exchange rate has been affected by other factors. As an example, from the reduction in local interest rates by banks on 6 July until the 1.5 percentage points increase on 8 September, the interest rate differential has clearly been in favour of US dollar deposits, which some would call an Alice-in-Wonderland situation. In addition,
US dollar
risks, and
While Hong
throughout this year the foreign exchange market has been heavily influenced by the concern expressed over the political future of Hong Kong, the general strength of the US worldwide, great concern about some Bovereign speculative activities arising from these factors. Kong accepts the reality of market forces, the depreciation of the Hong Kong dollar over the past year does seem excessive in terms of the underlying economic fundamentals, which indicate an export-led economic recovery. There are indeed clearly other reasons for the situation.
5.
There have been suggestions that the Government should abolish the 10% interest withholding tax on Hong Kong dollar deposits in order to support the exchange rate. I do not believe that the small tax differential has been a significant contributory factor to the depreciation of the Hong Kong dollar, though it must be unhelpful particularly psychologically I must also be concerned about the potential
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