TNAG-1624-FCO40-2238-Relations-between-Hong-Kong-and-China-1987 — Page 211

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Concluding remarks: implications for the Hong Kong economy

29.

So long as foreign exchange controls continue in

China, Hong Kong with its advantage of being

internationally oriented and not subject to any form of foreign exchange control will continue to enjoy a unique and superior position as compared to other cities in China, which should present ample opportunities for further development in Hong Kong-China economic relations.

30.

In many respects, the piece-meal relaxation measures being adopted by the Chinese authorities represent ways of intentionally rigging the foreign exchange market by giving preferential treatment to certain preferred uses or users of foreign exchange (e.g. the importation of high-technology equipment or essential raw materials not available locally, particularly by export-oriented enterprises) while discriminating against other less preferred ones. With such favourable factors as geographical proximity, cultural and language similarities, and good international business connections, and given the substantial economic relations that have already been established between Hong Kong and China, Hong Kong businessmen are well-placed to assist Chinese enterprises to exploit the various relaxation measures to their fullest advantage. This, in turn, provides a basis

for further enhancement of the established economic

relations.

31.

Consequential to the upsurge in the visible trade deficit, the Chinese government imposed a number of stringent measures to discourage imports since March 1985. These include raising the custom duties, imposing a new regulatory tax, and tightening the screening process on imports with particular regard to consumer goods. In

CONFIDENTIAL #2