TNAG-1873-FCO40-2661-Relations-between-Hong-Kong-and-China-1989 — Page 40

CONFIDENTIAL #3

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and the very extensive trading network possessed by Hong

Kong traders

11.

(2)

In the short to medium term, indirect trade

between China and Taiwan via Hong Kong will probably

continue to grow rapidly, particularly as regards re-exports of Taiwan origin to China. Semi-manufactures, manufactured goods, and machinery and equipment made in Taiwan seem to have a ready market in China. But, on the other hand, while many raw materials produced in China are much needed in Taiwan, China's ability to increase its exports of these items is uncertain given its need to satisfy its ever-increasing domestic demand.

12.

Over a longer period of time, if the Taiwan

authorities allow direct trade with mainland China, Hong Kong's role as the main entrepôt between the two is likely

to be reduced, at least in relative, if not in absolute,

terms. Apart from Guangdong, Guangxi and some other provinces in the south-western part of the country, which

would probably continue to trade with Taiwan via Hong Kong

for geographical and historical reasons, most other parts of China, especially those on the East coast, would tend

to trade with Taiwan directly and hence the share of the

trade routed through Hong Kong would probably be reduced.

But in view of the advantages possessed by Hong Kong as a

trading and transportation centre in the region, it might

well not lose in absolute terms if, as is likely, there

were very substantial increases in the total flows of

(2) Hong Kong is certainly the principal, but not the

only, entrepôt for indirect trade between China and Taiwan. Some of this trade is routed through, for example, Okinawa.

CONFIDENTIAL ##

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