=
18
manufacturing to services seems likely. But despite the
much larger potential productive capacity of China, the
sort of competition it will pose will probably not be much different from that of Hong Kong's existing competitors
like Taiwan, South Korea and Singapore and it is likely
that the changes will be gradual. Past experience suggests that Hong Kong should be able to maintain a
competitive edge if it continues to possess the internal
flexibility which enables it to make prompt and efficient
responses to changes in overseas market demand conditions.
43.
The prospect of China as a market for Hong
Kong's domestic exports and re-exports in 1986 and
probably also in 1987 is less bright. The Seventh Five-Year Plan does not include any encouraging news in this respect.
44.
As is implicit in the Seventh Five-Year Plan, tight control is still being imposed on imports and China will continue to be cautious in its use of its hard-earned
foreign exchange. Also, as the initial two years of the
Seventh Five-Year Plan are intended to be a consolidation
period and as it is intended that investment in fixed assets will be at a level not higher than that in 1985,
even imports of capital goods would be affected. The prospects for imports of consumer goods into China are likely to be worse than those for capital goods. Notwithstanding the above remarks, the adverse effects of China's import controls on Hong Kong's exports could be reduced as the relative importance of consumer goods in Hong Kong's exports to China is reduced and the relative
G.F. 326
CONFIDENTIAL # 3
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