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11. So great was the predominance in Hong Kong of shipping interests that for many years its industrial activity has been in the main connected with shipping requirements and has concentrated round ship-building and ship repairing. As these activities had to be on a scale commensurate with the importance of the port they quickly attained proportions for a long time unequalled in the Far East. They must obviously continue to constitute the nucleus of Hong Kong's heavy indus- tries as they are essential if the Colony is to discharge its primary function as an international trade centre. It is important to observe, however, that there is con- siderable industrial activity apart from shipping. The factories which have been established are largely of recent growth and are not of the heavy industry type. The Commissioners surveyed these recent industries at some length and came to the conclusion that they had a definite future and that their development should be encouraged. It is true that the problem of marketing the products may be accen- tuated by tariff and quota restrictions, but Hong Kong as a free port has advantages, in respect of manufacturing certain standard articles at any rate, which may well set off the obstacles to be overcome, and it may also be possible to explore the .possibilities of bilateral agreements with natural markets.

12. Further, the Colony possesses an asset in its attraction as a residential centre and as an holiday resort. A large number of wealthy Chinese who have retired from overseas or from the interior reside in Hong Kong where they acquire property and domicile themselves and their families. This class undoubtedly con- tributes valuably to Hong Kong's economic well being. The number of Chinese workers in Hong Kong who maintain their families here is increasing and the tendency should be encouraged. The Imperial forces maintained here contribute conspicuously to the Colony's prosperity. The money spent locally by visitors whe- ther foreign or Chinese must be considerable and with a definite measure of official encouragement local amenities might be improved, visitors might increase in num- ber and might be induced to prolong their stay.

13. While it is recognised that land available for agriculture is limited, it is felt that there must be a distinct possibility of the adoption of improved methods of cultivation and schemes of land reclamation with Government support. This would tend to render the community less dependent on outside sources of food supply. This is particularly important at a time when the earnings of the Colony as a whole have shrunk so much that in order to redress the economic situation the Colony should endeavour to spend as little as possible outside its borders. The proximity of a great urban market for produce does not seem to have stimulated the farming community to the extent that might have been expected under a progressive govern- ment. A Committee has now been appointed to explore the possibilities of develop- ment in this direction.

14. A further potential source of wealth would appear to be the Colony's fishing industry. With the introduction of more modern methods adequately sup- ported by capital the possibilities of development are so far as is known unlimited and the industry might well attain such proportions as to provide the Colony with an important export. In any event if development merely increased the local con- tingent of food supply it would, as with intensive agriculture, reduce the Colony's external expenditure on food and improve its economic position.

15. The main problem before the Commission was to make recommendations for the alleviation of the present position and for the improvement of the trade of the Colony. The foregoing brief analysis of the component factors of Hong Kong's prosperity provides the background against which this problem has to be studied and reveals immediately the limitations to which our recommendations must be sub- ject. It is obvious that we cannot recommend any alteration in the free port status of the Colony as a whole. Not only is this status essential to the entrepot trade. which is the foundation of our position as the Clearing House of South China, but also we must admit that Hong Kong is too small an unit to absorb the output of local industry or to have any great bargaining value in tariff negotiations. With these limitations therefore, it might be argued that nothing of any significance could be done, but that is an argument with which we are not prepared to agree.

16. It should be realised that China alone is more important from the point of view of the Colony's trade than the rest of the world combined and it may well be