TNAG-1624-FCO40-2238-Relations-between-Hong-Kong-and-China-1987 — Page 144

I

PERTNICTED

2

Table 1

Table 3 & Figure 1

Table 4 & Figure 2

re-imposed stringent import controls. Reflecting this, the trade deficit began to fall after reaching a peak of US$14.9 billion in 1985. In 1986, it was US$12 billion. In the first half of 1987, the trade deficit was reduced to US$2 billion, compared with a deficit of US$6.4 billion for the first half of 1986 (Table 1).

5.

On invisible trade, after deducting payments made to overseas countries, a surplus of US$3.8 billion was recorded in 1986. This was sufficient to cover about 1/3 of the visible trade deficit in that year. In the first half of 1987, the surplus on invisible trade was estimated at around US$1.7 billion.

6.

China's foreign exchange reserve position is affected not only by the balances on its visible and invisible accounts, but also by the net inflow of capital, through direct foreign investment in China and borrowings from overseas. Despite the substantial trade deficits

recorded in 1985 and 1986, China's foreign exchange reserves fell by only US$2.5 billion and US$1.4 billion respectively in these two years. This suggests that China secured a substantial net inflow of capital during this period. In the first half of 1987, in line with a

reduction in its trade deficit, China was able to achieve an increase of US$2.1 billion in its foreign exchange. reserves (Table 3 and Figure 1).

Hong Kong's contribution to China's foreign exchange earnings

1

In a variety of ways, Hong Kong has continued to make significant contributions to China's foreign exchange earnings. According to China's Customs statistics, Hong Kong is the largest market for China's exports. Between 1981 and 1986, the value of China's exports to Hong Kong increased at an average annual rate of 13% in US dollar terms (1) In 1986, these exports amounted to US$10 billion, equivalent to 32% of China's total exports (Table 4 and Figure 2). Two points are worthy of note,

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(1) Some discrepancies exist between China's Customs

statistics and Hong Kong's trade statistics. As this note deals with the importance of Hong Kong from China's viewpoint, most of the trade figures are quoted from the former source.