CONFIDENTIAL
between external trade and domestic demand than in 1987. The rate of inflation is expected to average around 7% for 1988 as a whole.
HONG KONG-CHINA ECONOMIC RELATIONS
5.
Since China's adoption of the "Open Door" policy in 1979, Hong Kong's economic relations with China generally, and Guangdong province in particular, have undergone rapid growth and development.
6.
Since 1985, China has been Hong Kong's largest trading partner. It is now the second largest market for Hong Kong's domestic exports, the largest market for Hong Kong's re-exports and the largest source for Hong Kong's imports. Reciprocally, Hong Kong has recently overtaken Japan to become China's largest trading partner, accounting for more than a quarter of China's external trade.
7.
Hong Kong is also the most important source of foreign investment in China, both in terms of the total number of projects entered into (75%) and the total contract value committed (up to
70%).
In recent years, China-interest companies have also made very
substantial investments in Hong Kong.
8.
Other important areas, for example, invisible trade (including tourism) and financial links have also been developing rapidly in
recent years.
9. Of all the provinces in China, Hong Kong has its closest economic relations with Guangdong. Guangdong is now China's top exporting province. Hong Kong is its largest export market, accounting for nearly 70% of the province's total exports. Hong Kong is also the most important source of foreign investment in Guangdong (60-80%).
10. Virtually all outward processing activities in Guangdong are related to Hong Kong. Considerable labour resources in Guangdong (over 1 million workers) are used in production which earns foreign exchange for China, while the productive capacity of the manufacturing sector in Hong Kong is correspondingly increased.
CONFIDENTIAL
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