TNAG-2617-FCO40-3808-Visit-by-Lord-Caithness--Minister-of-State-for-Foreign-and-C-1992 — Page 104

CONFIDENTIAL

FM HONG KONG

TO IMMEDIATE FCO

TELNO 288

OF 30104OZ JANUARY 92

INFO PRIORITY BTC HONG KONG

38

CONFIDENTIAL

HKD 026/3

28.

047730 MDHIAN 1249

TOP COPY Q DIST?

MIPT: LORD CAITHNESS' VISIT TO HK: 16-22 FEBRUARY:

BRIEF ON HONG KONG ECONOMY.

1. IN 1991, GDP GROWTH REACHED 4 PERCENT IN REAL TERMS. THIS REPRESENTED A PICK-UP IN ECONOMIC ACTIVITY AFTER TWO CONSECUTIVE YEARS OF SLOW GROWTH. WHILE HONG KONG'S EXPORTS, PARTICULARLY RE- EXPORTS, CONTINUED TO PROVIDE THE MAIN IMPETUS TO GROWTH, THE REVIVAL OF THE ECONOMY WAS REINFORCED BY DOMESTIC DEMAND. LOCAL CONSUMER SPENDING IMPROVED FURTHER, AND INVESTMENT IN PLANT AND MACHINERY INCREASED SHARPLY.

2.

RE-EXPORTS GREW SUBSTANTIALLY BY 29.2 PERCENT IN VALUE TERMS (AS COMPARED TO 19.5 PERCENT IN 1990). THIS ROBUST PERFORMANCE WAS MAINLY ATTRIBUTABLE TO THE CONTINUED RAPID INCREASE IN RE- EXPORTS INVOLVING CHINA (IN BOTH DIRECTIONS). DOMESTIC EXPORTS INCREASED BY ONLY 2.3 PERCENT (0.8 PERCENT INCREASE IN 1990). THE SHIFT FROM DOMESTIC EXPORTS TO RE-EXPORTS WAS LARGELY RELATED TO OUTWARD PROCESSING ACTIVITIES ACROSS THE BORDER. IMPORTS INCREASED BY 21.2 PERCENT IN VALUE TERMS (OVER 14.2 PERCENT IN 1990). RETAINED IMPORTS FOR DOMESTIC USE ROSE SHARPLY BY 10.8

PERCENT IN VALUE TERMS.

3.

THE SHIFT TOWARDS SERVICES CONTINUED, ACCOMPANIED BY A CONTINUING DECLINE IN MANUFACTURING EMPLOYMENT. THIS REFLECTED THE GROWING ECONOMIC RELATIONS BETWEEN HONG KONG AND CHINA. SOME 3 MILLION WORKERS IN THE PEARL RIVER DELTA REGION ARE NOW ENGAGED IN JOBS ASSOCIATED WITH HONG KONG COMPANIES. THIS THEREFORE CONSTITUTES AN EFFECTIVE EXTENSION OF HONG KONG'S PRODUCTION

BASE.

4.

LOCALLY, THE PROGRESSIVE RELOCATION OF MORE LABOUR-INTENSIVE PRODUCTION PROCESSES TO CHINA RESULTED IN A LEANER AND MORE EFFICIENT MANUFACTURING SECTOR. DESPITE A 10 PERCENT DECLINE IN THE MANUFACTURING WORKFORCE, HONG KONG MAINTAINS ITS HIGH LEVEL OF INDUSTRIAL PRODUCTION. THE LABOUR MARKET SHOWED SIGNS OF TIGHTENING UP AGAIN, WITH UNEMPLOYMENT FALLING TO BELOW 2 PERCENT

1

PAGE

CONFIDENTIAL