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activities, there is also every reason to believe that with more stable conditions imports of capital goods, i.e., plant, machinery and equipment of various kinds necessary for industrial development, will increase. Were it to be possible for China to develop to a much greater extent her fundamental industry of agriculture and thereby obviate the necessity of importing large quantities of foodstuffs this develop- ment would ensue more rapidly. Sudden change cannot be desired nor expected, but while it is generally realised by most economists that in order to cause the least disturbance during change the movement must be gradual, according to plan, and each step consolidated, China has by the rapid imposition of high tariffs handicapped the importation of foreign goods while not yet having made adequate provision for their replacement by local production.

13. Enough has been said above to show that the existing depression in Hong Kong has its sole cause in external factors. We are suffering from the world wave of depression and as far as that is concerned Hong Kong can only wait patiently for the turn of the tide. A partial cause of our depression is that China has also suffered a decline in trade with a consequent decrease in revenue and the partial result that her Government has endeavoured to maintain revenue by increasing taxation on imports. China has also, although as yet but poorly industrially developed, adopted in common with many other countries the principal of economic nationalism which is tending to narrow the volume of international trade, and to allow it only under high costs when there is any chance of the commodities concern- ed being manufactured within the country.

Chapter V.

HONG KONG'S POSITION VIS-A-VIS CHINA.

1. In view of the circumstances adumbrated above it has been considered by some that nothing can be done to alleviate conditions in Hong Kong and that we can only wait for a revival of world trade. We have asked ourselves whether a revival of world trade will necessarily bring returned prosperity to the Colony. The answer we have made is that while Hong Kong must somewhat participate in any such improvement it is not, in view of the rising industrial activity and high tariffs of China likely to get very far without a much closer friendly economic contact with China and/or a closer economic contact with the rest of the British Empire. The second point will be dealt with in the next chapter. Here we are concern- ed with Hong Kong's position vis-a-vis China.

2. Hong Kong in natural economic circumstances is dependent on China for a great deal of its welfare. A considerable portion of its daily food comes from China and its main trading business is with China. On the other hand Hong Kong is economically of great value to South China inasmuch as it is the great sea-port through which goods flow to and from the rest of the world, a financial centre, and a storehouse of great value to trade as goods stored in Hong Kong do not have to bear duty charges. A further and very striking point regarding this Colony in its relationship to China is that its population is 97% Chinese and that the majority of this Chinese population has its roots in the South China provinces, mainly Kwang- tung.

3. A discursion here on the population of Hong Kong may be of some interest. Prior to the British occupation of Hong Kong the population ashore and afloat does not appear to have exceeded a total of 2,000 persons. In 1842 this had increased to over 15,000 persons about 12,000 of whom were Chinese. In 1871 the popu- lation was about 124,000 and in 1921, 50 years later, it had increased to over 600,000. The last census was taken in 1931 when the total population was re- corded as being, to the nearest round figure, 850,000. The actual increase in the population in the decade 1921-1931 of 215,000 people was larger than in any pre- vious decade though the rate of increase was less than that of the previous decade being only 34.44% as compared with 36.87%.