TNAG-2792-FCO40-4031-Relations-between-Hong-Kong-and-China-1993 — Page 162

little incentive to improve the housing stock, are major weaknesses.

2.86 Another problem presently holding back growth is the undeveloped nature of the housing market. Further reforms in this market (more home ownership by tenants would be particularly desirable) would be a major boost to development. It is, however, believed that reform in this area may be slow. More home ownership and fewer employers taking responsibility for housing may also, of course, restrict labour mobility.

Political Uncertainty

2.87 Note finally needs to be made of the uncertainties surrounding political developments. Economics and politics in China are heavily intertwined. Political power is embodied in personalities not institutions. It is also not clear whether or not the present political leadership is fully reconciled to the reform process that has been unleashed over the last ten years.

2.88 Many different paths of development could be adopted in the future - an unstable political environment could lead to a loss of business confidence and disruption to the newly emerging industrial base.

2.89 Despite the uncertainty surrounding China's political stability, few countries sink into political turmoil during periods of increasing prosperity - the prospects must, therefore, be good. Given the clear success of the "open door” and “reform" policies, it must be considered unlikely that these policies would be reversed.

2.5

Opportunities for Further Development

General

2.90 The opportunities for further development are almost limitless - much, however, depends on the type of development that is deemed acceptable. As long as the Province has a willing and productive workforce prepared to move to where there are jobs and to accept wages that are lower than in the newly industrialised Asian economies, there will undoubtedly be increasing volumes of work. It is, however, doubted whether this is a particularly desirable course for development. Low wages and the destruction of local communities by ensuring that labour moves around to suit the needs of capital are, in the long term, socially undesirable situations.

External Markets

2.91 In the short to medium term, growth is likely to continue to be based on low costs attracting foreign direct investment and the formation of indigenous enterprises. Productivity rates are likely to increase as the workforce becomes more used to the rigours of the capitalist methods of working and the "iron ricebowl" mentality recedes, as skills increase and as local management becomes better able to market the province's capabilities (in this respect, there is a need for local entrepreneurs to be able to go out into the international market place to sell the province's capabilities - present restrictions on foreign travel are doing much to hinder this).

2.92 There is much evidence, too, to suggest that foreign businesses are not yet fully aware of the Province's potential - even though the Consultants believe that the present emphasis on outward processing and joint venture, export oriented business arrangements cannot in the long term continue to dominate the economy. It is likely that at some point soon, much industry in the Province will wish either:

(a)

(b)

2.93

to begin to go it alone - leaving behind its need for joint venture partnerships - the old partners will become the new competitors; or

to become more fully integrated with its present overseas investors by becoming affiliates, subsidiaries or franchise holders.

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Overseas investors will clearly have some (though certainly not the ultimate) control over this process. The attitude of the Chinese Government to multi-national (albeit Hong Kong or even partly PRC owned) corporations competing, more openly, with local companies will be more important and clearly needs to be tested. The evolutionary process is also likely to be influenced by the present predominance of collective forms of ownership. A logical progression might be for these forms of enterprise to issue their present owners with share certificates that can be formally traded - either "over the counter" or on a local stock market. The advent of a fully capitalist system of enterprise ownership may be much closer than most people realise.

2.94 In the longer term, the main opportunities lie in the Province's ability to move away from low value-added manufacturing and to develop the necessary comprehensive structure of supporting facilities. Just as the province has benefitted from its proximity to Hong Kong in the past, so is it likely to

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