CONFIDENTIAL
HKB 026/8
TOP COPY Q DIST ?
CONFIDENTIAL
FM HONG KONG
TO DESKBY 12130OZ FCO
TELNO 4544
OF 12113OZ DECEMBER 88
9
056201 MDHIAN 5266
MIPT: BACKGROUND BRIEF FOR LORD GLENARTHUR: THE HONG KONG ECONOMY
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1. THE HONG KONG ECONOMY CONTINUES TO GROW STRONGLY. ITS CURRENT IMPETUS IS DERIVED NOT ONLY FROM EXTERNAL TRADE BUT ALSO FROM DOMESTIC DEMAND.
2. THE GROWTH IN EXTERNAL TRADE IN 1988 WAS LED MAINLY BY RE-EXPORTS. IN THE FIRST NINE MONTHS OF 1988, THE VOLUME OF DOMESTIC EXPORTS ROSE BY 8 PERCENT AND RE-EXPORTS BY 45 PERCENT, OVER THE SAME PERIOD IN 1987. AS A RESULT, THE SHARE OF RE-EXPORTS IN HONG KONG'S OVERALL EXPORTS INCREASED TO 55 PERCENT, AS OPPOSED TO 48 PERCENT IN THE SAME PERIOD LAST YEAR.
3. THIS RAPID GROWTH IN RE-EXPORTS REFLECTS THE RE-EMERGING ROLE OF HONG KONG AS AN IMPORTANT ENTREPOT SERVING CHINA AND THE ASIA-PAC-
IFIC REGION IN GENERAL. HOWEVER A SIGNIFICANT PROPORTION OF THE RE-EXPORTS FROM CHINA ARE THE PRODUCTS OF OUTWARD PROCESSING ACTIVITIES COMMISSIONED BY HONG KONG MANUFACTURERS.
4. THERE HAS BEEN SUBSTANTIAL GROWTH IN 1988 IN HONG KONG'S DOMESTIC EXPORTS TO CHINA, THE UNITED KINGDOM AND JAPAN, AND A SMALL INCREASE IN EXPORTS TO THE FEDERAL REPUBLIC OF GERMANY. DOMESTIC EXPORTS TO THE UNITED STATES HAVE FALLEN APPRECIABLY.
5. AT PRESENT, THE LABOUR SHORTAGE AND INFLATION ARE OUR TWO MAIN ECONOMIC CONCERNS. THE UNEMPLOYMENT RATE HAS BEEN LOW FOR THE PAST TWO YEARS. CURRENTLY IT STANDS AT AN HISTORIC LOW OF 1.5 PERCENT. CONSUMER PRICE INFLATION IS NOW RUNNING AT AROUND 8 PERCENT THESE PRESSURES ARE NOT UNEXPECTED IN A SITUATION WHERE RESOURCES ARE BEING UTILISED AT VIRTUAL CAPACITY.
6. LABOUR SHORTAGES HAVE PROMPTED A STRONG GROWTH IN INVESTMENT, NOTABLY IN PLANT AND EQUIPMENT. THIS IN TURN HAS HELPED TO RAISE LABOUR PRODUCTIVITY.
7. HONG KONG'S TRADE WITH CHINA HAS GROWN SO FAST IN RECENT YEARS THAT CHINA AND HONG KONG ARE NOW EACH OTHER'S LARGEST TRADING
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