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5. In the other direction Hong Kong firms see Japan as a huge potential market, but one which has yet to be cracked. Hong Kong's added competitiveness on account of the higher yen caused exports to Japan to increase rapidly, by 52% in Hong Kong dollar terms, in 1986 and 1987 respectively. But in 1988 they hit a plateau, and the recent strengthening of the dollar suggests that 1989 will also see little growth. Most of Hong Kong's domestic exports (in other words, those manufactured in Hong Kong itself) are high quality luxury goods such as jewellery and furs which will benefit from the growing personal expenditure on non-essential items here over the last few years. But Hong Kong also has high hopes for its textiles in the Japanese market, and here they have hit opposition from Japanese producers who have seen their market share cut successively by the Koreans and Taiwanese. In 1988 MITI, under pressure from
its domestic lobby, offered Hong Kong a bilateral deal guaranteeing a fixed share of the silk fabric market. Hong Kong refused, and proposed instead discussions at the GATT in Geneva.
Political Dialogue
6.
In contrast to her exploitation of Hong Kong's economic dynamism and commercial opportunities, Japan has been cautious in dealing with the territory as an autonomous political entity. The Hong Kong Economic and Trade Office, set up in Tokyo last year, remains narrowly focussed. Key decisions on bilateral issues are significantly devolved to the Japanese diplomats in Hong Kong itself, or left to negotiations at the GATT in Geneva. In the formulation of Pacific Rim policy (such as PECC or other, more recent, regional economic cooperation initiatives) there is a fairly clear differentiation in Japanese minds between Hong Kong (regarded as an economy, rather than an autonomous territory) and the other NICs or ASEAN nations, and as we have seen recently, a reluctance, despite their recognition of Hong Kong's stabilizing role in the region, to show support for it at the risk of problems in relations with the PRC.
The Future of Japan-Hong Kong Relations
7. Until the Tienanmen Square incident in June Japanese business worries about the future of Hong Kong focused, as the Financial Times put it, on the risk of Hong Kong slowly decaying as an internationally important financial and trading centre because of Communist interference or bureaucratic hassles. That is still the predominant concern, but businessmen and officials regard business as pretty much normal for the moment. One commentator told us he thought that despite reassurances on the sanctity of the Joint Declaration from Peking, a number of Japan's interests (for example, the preservation of a free trading and financial environment) might be served by supporting
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