TNAG-1621-FCO40-2235-Relations-between-Hong-Kong-and-China-1987 — Page 69

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Hong Kong products can be maintained. Second, the availability of outward processing capacity in China tends to provide greater flexibility to the productive capacity

of the local manufacturing sector. By expanding or contracting its outward processing orders, the local manufacturing sector can cope more effectively with

fluctuations in overseas orders.

11.

The extent to which local manufacturers can take

advantage of the cheap labour available in China will continue to be limited by what is deemed permissible under

international trade agreements, particularly those

relating to quotas and origin rules. Moreover, the diversion of production to China implies a loss of some manufacturing jobs in Hong Kong: in effect, it is very

similar to the importation of cheap labour into Hong Kong, and has a depressing effect on the wage level of the local

workforce. It may also slow down the process whereby capital accumulation embodying more advanced labour-saving technologies is introduced into the local economy. The

less than satisfactory growth (at 2% p.a. between 1981 and 1985) of investment in plant and machinery for use in the manufacturing sector may be partly related to this diversion of production to China. However, the argument of "China gaining jobs at the expense of Hong Kong" is valid only if the outgoing production processes could still be economically carried out in Hong Kong and if, at that point in time, Hong Kong had the spare capacity to produce more. With product prices being largely set by overseas buyers there is a limit to the extent to which the substitution of capital equipment for labour can be

deemed economically viable. In view of the labour constraint, the diversion of labour intensive production processes to China should help to release manpower in the

G.F. 326

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