TNAG-1873-FCO40-2661-Relations-between-Hong-Kong-and-China-1989 — Page 30

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development.

Hong Kong's role as an entrepôt for trade

between China and South Korea arises, at least partly,

because there are no formal diplomatic relations between

(2) the two countries

Apart from politics, indirect

·

trade via Hong Kong is further facilitated by the

excellent infrastructural facilities (both hard ones like

the container port and soft ones like financial services)

found here and the very extensive trading networks

possessed by the Hong Kong traders (3).

11.

In the short to medium term, the volume of

indirect trade between China and South Korea should

continue to increase. The market in China for South

Korea's semi-manufactures and industrial machinery and

equipment will probably continue to grow in size, so long

as China is developing its industries. Similarly exports

of raw materials, semi-manufactures and manufactured goods from China to South Korea should expand, particularly

given the fact that South Korea is reducing its

restrictions on many imports and given its higher labour

costs. The major inhibiting factor seems likely to be the

fact that some raw materials are in short supply in China.

(2)

Although direct trade between China and South Korea is now possible even without formal diplomatic relations between the two countries (paragraph 11), politics is still a hindrance to trade growth because with no formal mutual recognition of each other, it is very difficult to solve any commercial and trade disputes since there is no established legal framework for both countries to follow.

(3)

Hong Kong is certainly the principal, but not the only, entrepôt for indirect trade between China and South Korea. Some of this trade is routed through, for example, Okinawa.

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