TNAG-1268-FCO40-1617-China-s-economic-relationship-with-Hong-Kong-Shenzhen-econom-1983 — Page 61

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advantage (due to low production cost and low transportation cost as a consequence of geographical proximity) and because they suit the tastes of the Chinese in Hong Kong. The existence of many large retail outlets in form of department stores specialised in Chinese products also helps in promoting the sales of these products. Such facilities are not present in other countries and could not be easily established. So, it is likely that even allowing for the efforts that would be made by the Chinese Government to promote these products abroad, only a small proportion of those Chinese products presently sold in Hong Kong is likely to

find alternative markets.

35.

(c) Summary

To summarise, the cost to China in terms of foreign exchange of assimilating Hong Kong so that the Hong Kong dollar disappears or becomes

non-convertible depends primarily on:

(a) its effect on Hong Kong's trade and

thus its non-Renminbi foreign exchange

surplus; and

(b)

*

China's ability to divert the goods

now sold in Hong Kong to other markets where they would earn foreign exchange.

On both counts the prospects are not particularly promising so the expectation would be that China would lose a substantial proportion of the foreign exchange earnings it presently obtains through

trading with Hong Kong.

G.F. 326

CONFIDENTIAL #3