TNAG-1458-FCO40-1982-Relations-between-Hong-Kong-and-China-1986 — Page 62

G.F. 326

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Summary and conclusions

33.

Reflecting the measures adopted by the Chinese

government to cool down its economy, the

previously-excessive rate of economic growth appears to

have been contained. However, whether or not the

austerity programme will put the Chinese economy back on

track depends largely upon whether the controls are

applied in such a way that funds are channelled to

bottleneck areas and well-run enterprises. The latest

investment figures, however, show that the share of

investment going to the critical transport and raw

materials sectors has declined. This trend, if continued,

will have adverse implications for China's long term

economic development. In the external sector, the visible

trade deficit showed no significant improvement in the

first half of the year. Probably in view of this, the

Chinese government has placed greater emphasis on import

substitution. It has also devalued the Renminbi by 13.6%

in July.

34.

The sharp devaluation of the Renminbi is likely

to have mixed effects on Hong Kong's economy. The competitiveness of Hong Kong's exports in the China market vis-à-vis those from other countries has not worsened.

However, as the Renminbi cost of importing foreign goods,

including those from Hong Kong, has been raised, Chinese

enterprises may reduce the level of their imports. This

would have adverse implications for Hong Kong's exports to

China. On the other hand, to the extent that China's

exports increase as a result of enhanced price

competitiveness, Hong Kong should stand to gain from

increased re-export trade and transhipment business.

the price front, the devaluation of the Renminbi is likely

to exert some dampening effect on price increases of goods

imported into Hong Kong from China.

On

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