TNAG-1621-FCO40-2235-Relations-between-Hong-Kong-and-China-1987 — Page 67

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12% of Hong Kong's total domestic exports. China is peculiar among Hong Kong's major domestic export markets

for the reasons discussed below.

6.

In the first place, the actual importance of China as a domestic export market of Hong Kong, in terms

of its value-added contribution, is likely to be less than

the trade figures might suggest. This is because domestic exports to China include a much higher proportion of semi-manufactures relative to finished products, compared

with domestic exports to the world in general. This

phenomenon is at least partly related to compensation

trade and outward processing arrangements between Hong

Kong and China.

7.

Secondly, as China is still basically a centrally planned economy, it is less likely to be affected by the cyclical fluctuations that characterise

the developed market economies which are Hong Kong's other major export markets. So there is a possibility that trade with China could help to cushion some of the adverse effects of a downturn in Hong Kong's domestic exports to the developed world, as occurred in 1982 and 1985 when domestic exports to China grew by 20% and 33% respectively

in real terms, while the corresponding growth rates for total domestic exports were -2.5% and -5.4%. But there is no guarantee that this will always happen, given that the amount of China's imports varies from year to year and may be increasingly influenced by the world trade cycle.

8.

Thirdly, most of Hong Kong's domestic exports to China of consumer items are products of lower quality.

The existence of a large market on Hong Kong's doorstep to

receive its lower-end products means that the product life

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