TNAG-1483-FCO40-2037-Economic-situation-in-Hong-Kong-1986 — Page 190

HKK 090/2

RECEIVED IN RI

10 OCT 1986

DESK OFFICE

Mr Thomaspex

HKD

Reference......

Hkk 090/2 (19

Mr Kupanda fr

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Ente - p.a. HW

economy file fire

HONG KONG: HALF YEARLY ECONOMIC REPORT 1986

CODE 18-77

1. This latest quarterly report from the HKG indicates a fairly encouraging picture, with increasing growth of domestic exports, but still suggests weakness in investment. The budget forecast of 4.5% growth in GDP for 1986 is likely to be exceeded if export growth continues at current rates.

EXTERNAL

2.

Growth in domestic exports of 8% (in volume terms, relative to the first half of 1985) was comprised of a 1% increase during the first quarter and a 14% rise in the second quarter. Growth of domestic exports to major markets was as follows:

USA China FRG

5

9 29

UK 7

Japan

12

H1 1986/H1 1985(%)

3.

Improved competitiveness as the result of HK $ depreciation is seen as the major explanatory factor, with the contraction in the Chinese market due to increased central control over foreign exchange use.

4. Exchange rate effects, particularly yen appreciation, seem to have had a powerful impact on real growth in imports from various markets:

H1 1986/H1 1985(%)

China Japan USA Taiwan

41

16

www

- 7-1

UK

4

Overall growth was about 5%, with the growth in retained imports (ie not re-exported) 10%. The pattern of use of retained imports shows plans for continued growth in production for exports, but continued weakness in investment in plant and machinery:

Fuels Raw Materials

and semi- manufactures

15

Capital goods

5

Foodstuffs

Consumer

goods

Hl 1986/H1 1985 13

10

14

( 8 )

5. The value of re-export trade was about the same as the corresponding six months of 1985 but has increased since a first quarter fall. Re-exports originating in China were some 35% higher in Hl 1986, perhaps indicating the effects of attempts to raise export receipts.

6. The trade-weighted index for the HK $ has shown the effects of the link with a depreciating US $, falling from 70.6 at the end of 1985 to 65.4 at the end of June.

/.....