G.F. 32h
f
CONFIDENTIAL # 3
5
(a) Prices of Hong Kong's imports from China
10.
A large proportion of Hong Kong's imports from China, particularly fresh foodstuffs, come from the Guangdong Province where the rate of inflation, at
around 20% for the first half of 1988, is significantly
higher than the national average of 13% (paragraph 40).
But, rather surprisingly, the prices of imports from
China remained fairly stable in the first half of 1988
(paragraph 41). However, the prices of goods from China
did increase significantly at the retail level, implying
that the mark-ups by distributors in Hong Kong have
increased significantly during the same period
(paragraph 42). Nevertheless, although the retail
prices of goods from China increased at roughly the same
rate as those of other consumer goods, their rate of
increase was still well below the inflation rate in
China.
11.
It is not entirely clear why the prices of
imports from China do not fully reflect domestic
inflation in China but two factors may help to account
for it. To encourage the export drive, the Chinese have
been subsidising certain export prices to maintain international competitiveness (paragraph 35). Further,
as practically all imports from China are denominated in
Hong Kong dollars, the unofficial depreciation of Renminbi has enabled some exporters in China to convert their foreign exchange earnings into more Renminbi than
previously (paragraph 41).
12.
The slower increase in the import prices of Chinese goods than in their retail prices in Hong Kong may well be explained partly by the effect on these prices of inflation in Hong Kong and partly by price
CONFIDENTIAL #3
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