GF 323
CONFIDENTIAL #
16
Implications for the Hong Kong economy
27.
In the present
circumstances,
Hong Kong's
inflation will probably be not much affected by China's
inflation. This is because the prices of China's imports
into Hong Kong, which are mostly denominated in Hong Kong dollars, will probably change little as the higher prices and costs in China are being offset by the depreciation of
the Renminbi. Moreover, China's share in Hong Kong's
to
retained imports has declined substantially over the years,
from 20% in 1985
only 6% in 1992 (17), The overall
influence of the prices of Chinese goods on Hong Kong's inflation is correspondingly reduced.
28.
have
China's inflation is also expected to relatively little impact on Hong Kong's outward processing activities in Guangdong, with regard to the external price competitiveness of the products. Processing fees are paid in foreign currencies, predominantly Hong Kong dollars and
US dollars. Again, the higher local costs in the province
are being offset by the depreciation of the Renminbi. The
raw materials and semi-manufactures for the outward
processing activities are largely imported from overseas
through Hong Kong. Where some of these materials sourced
from China and paid in local currencies, the Renminbi depreciation should likewise help to offset the higher
supply costs.
The sales of outputs of foreign-funded
enterprises to China's domestic
market (18)
are likely to
(17)
(18)
1980
1985
1990
1991
1992
Share of China in Hong Kong's retained imports
(8%)
17
20
9
10
6
In
general, up to 30% of the outputs of foreign-funded enterprises in China are allowed for domestic sales. This ceiling may soon be relaxed further, as China is opening up its retail trade sector.
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