CONFIDENTIAL
2.
exchange earnings, because of increased imports by China from and through Hong Kong, the net contributions from Hong Kong to China's foreign exchange earnings has fallen from about 23% in 1980 to about 15% in 1984 and may well have been negative in the first half of 1985.
5.
These figures should not be taken as precise. We have tried on a number of occasions to establish a clear overall picture, including invisibles, but we simply do not know, and have no means of knowing, with any accuracy, for example, how much of the profits from operations by PRC-based enterprises in Hong Kong are repatriated to China. There is also substantial Hong Kong investment in China, both in the SEZs and further afield: again precise figures are hard to come by. We are doing our best to improve the statistics and this is one of the priority tasks for the Economic Relations Committee set up under the revived committee structure on Hong Kong/China economic relations, the background to which is contained in a secretariat circular copied to you separately. However, rapid success in this field is unlikely unless the Chinese make more data available.
6.
Taking the figures at face value, however, in overall terms China's dependence on Hong Kong for its gross foreign exchange earnings has not significantly diminished, except to the extent that the proportion of China's total exports to Hong Kong which are re-exported (and which in theory need not pass through Hong Kong) has increased. This somewhat diminishes the importance of China's traditional direct exports to Hong Kong of water, food and livestock, items not readily exportable elsewhere. Conversely, Hong Kong's dependence on China has increased since China has become the second largest market for Hong Kong's domestic exports.
7.
But there are also a number of unquantifiable ways in which Hong Kong is an asset to China. The rapid growth rate of China's exports to Hong Kong which are subsequently re-exported indicates the extent to which China is using the marketing and international trading facilities of Hong Kong, including its excellent sea and air communications, to expand its export trade. China is also making use of Hong Kong, through the plethora of business study visits by delegations from all over China, who come here to study manufacturing and managerial techniques, both on the ground at the invitation of Hong Kong companies, and through a variety of study sessions and seminars organised by academic institutions and private consultancy firms. Increasing numbers of Hong Kong residents are working in China providing specialist skills and training in such areas as hotel management, construction and factory management.
8.
Thus, although the net contribution made by Hong Kong to China's foreign exchange earnings has diminished, Hong Kong remains an asset to China in both gross and net terms.
CONFIDENTIAL
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