TNAG-1873-FCO40-2661-Relations-between-Hong-Kong-and-China-1989 — Page 11

CONFIDENTIAL

3.

Report on Development in Hong Kong/China Economic

Relations in the Second Quarter 1988 (Paper CRC 12/88)

Govt Econ introduced the Paper. China had experienced very rapid growth in the past year and was now reaping the consequences - bottlenecks in the energy and communications sectors and the problem of excess

demand. Although exports had not yet been affected, it

was likely that they would be as resourses were

channelled from the external to the internal sector.

Within China, Guangdong was the fastest growing province

and also the main exporting province. It contributed

16% of the National GDP. Retained imports from China

had fallen a surprising 25% in the period. He believed

that this was the result of improved honesty in the

making of trade declarations(!) As Hong Kong

businessmen heard of the increased prosecutions relating

to origin fraud, they seemed to have cleaned up their

act, especially in the area of textiles. C for C&E said that prosecutions were not only related to textiles but

also other areas including electronic and electrical

goods. He confirmed that the judiciary were being

helpful on origin fraud, for example, they had recently fined a manufacturer $400,000.

4.

5.

STI informed members that the TDC and Census &

Statistics Department were doing a joint survey on Hong

Kong's exports to China in an attempt to establish what

proportion was retained in China and what proprotion was returned to HK after reprocessing.

Govt Econ said that there had probably been a slight decrease in the growth rate of outward processing activity in China as a result of Hong Kong's economy

slowing down. The CS asked whether many Hong Kong

manufacturers were diverting to Thailand. Govt Econ

felt with HK manufacturers China still remained their

first choice. Thailand was, however, becoming more

attractive to manufacturers in the region.

CONFIDENTIAL