TNAG-1873-FCO40-2661-Relations-between-Hong-Kong-and-China-1989 — Page 43

CONFIDENTIAL

2 -

3.

Increasing outward processing activities have significant implications

for the analysis of Hong Kong's external trade statistics. Under the existing

internationally accepted system of recording trade flows, all movements of

trade.

Thus all movements

goods across the border should properly be recorded as

of goods associated with outward processing are included in the regular trade

statistics. However, they cannot be readily distinguished from the trade

flows involving China which are not associated with such activities. To enable

a more thorough analysis to be made of Hong Kong-China trade, it is therefore

necessary to supplement the conventional trade statistics with information

on outward processing trade. In so doing, more light can be thrown on the

extent of cooperation in manufacturing activities between Hong Kong and China,

and on the relative importance of China as a customer for goods supplied from

or through Hong Kong. It should be noted that Hong Kong and China are not

unique in having such industrial sub-contracting arrangements, and indeed

some of the trade flows in the South East Asia region are of broadly similar nature.

4.

As a first step in studying outward processing activities, the Census

& Statistics Department initiated a survey in the latter part of last year,

with a view to ascertaining the amount and proportion of Hong Kong's exports

(domestic exports as well as re-exports) to China which are of outward processing

nature.

Definition

5.

In designing the survey, it is considered that local involvement

in outward processing activities in China which are of pure investment nature,

or which do not require the raw materials and/or finished goods concerned

to pass through Hong Kong at all, should not be included. This is because

firstly, such activities are not specific to China and could exist between

Hong Kong and other economies. Secondly, it is very difficult to collect

information relating to such activities. Thirdly, such activities do not

have direct effect on the external trade statistics.