TNAG-2244-FCO40-3225-Most-favoured-nation-status-for-China-impact-on-Hong-Kong-1991 — Page 28

CODE 18-77

Mr Furness

1) Mr. Lox

inf Je in 2) Mir

Hong Kong Dept tono (or).

CHINA/USA TRADE DEFICIT

川

Kepest

Reference

This followed

a

HAD 090/4

suggestion

224

on othe

other pajis

that the Chinese believed the trade surplus

Mate

if which the US complained to be due to

AK, not China.

1. We spoke about China's trade surplus with the USA and the importance of reexports through Hong Kong.

2. The Chinese calculate trade figures differently to the USA. According to Chinese customs statistics China posted a bilateral trade deficit with the USA in 1990 of US$ 1.4 bn. American customs statistics on the other hand indicate that China had a trade surplus of US$ 10.4 bn with the US

US that year. The difference in figures is due largely to the fact that China does not include Chinese goods reexported through Hong Kong whereas the US counts all goods shipped to and from the PRC whether or not they are shipped via third parties such as Hong Kong.

In 1990 goods of Chinese origin reexported to the USA through Hong Kong were worth US$ 10.5 bn according to HK Govt.

3. It is more difficult to give a breakdown of reexports. Nevertheless, in view of the large scale of investment by HK enterprises in Southern China (for instance HK accounts for about 60-70% of investment in Shenzhen) it would not seem surprising if HK companies in China do account for 70% of China produced goods reexported through Hong Kong. To say that only 10 % of reexports are "real Chinese goods" is making a rather fine distinction between companies financed entirely by Chinese capital and those financed only partly. So called "three finance" companies (foreign financed or joint venture enterprises) are an essential part of China's economic reform and important foreign exchange earners for the PRC.

4. Incidentally I doubt whether the export success of HK companies in China is in itself putting Hong Kong at risk in the MFN battle. US dissatisfaction is not so much at the trade surplus as at increased Chinese protectionism which contributed to a 17% drop in imports from the USA last year. There have been US allegations also of illegal shipment via third countries using false invoices and papers.

Stephen Mix

Stephen Lillie Economic Advisers WH426c 270 2733

6 November 1991