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be afforded, we feel that we should fail in our duty if we did not strike a note of warning. We do not believe that uneconomic industries should be subsidised.) In highly developed countries having resources of raw material, highly skilled man power and large permanent populations, which are themselves consumers, it has sometimes been found necessary to subsidise industry in order that it may maintain its markets during temporary adversities. The premises do not apply to Hong Kong and there is every reason to believe that once a subsidy was granted to an industry in Hong Kong it would have to be continued. Moreover, the granting of a subsidy would merely mean the transference of the burden to the other activities of the Colony either in the form of increased taxation or in delay in a possible reduction of taxation, while repercussion elsewhere is incalculable. While such industries as are possible in the Colony are on a sound economic basis there is every reason to expect fair dealing with the rest of the Empire and other countries. For a sub- sidised industry such treatment cannot justly be claimed; and Hong Kong is in no position to embark on a trade war, the weapons in which are tariffs, quotas, counter- subsidies, etc.)

13. For this reason and others it is not anticipated that Hong Kong will ever be a suitable place for the establishment of heavy industries other than those naturally related to shipping and ship repairing, except in so far as it may be able to co-operate with South China in general industrial development. It has been said elsewhere in this Report that we do not advocate import duties as a means of pro- tection. Local consumption is comparatively small and against the limited benefit to local industries would have to be set the adverse effect on the much larger entrepot trade for which bonding or similar facilities would have to be organised at consider- able expense.

14. In striking this note of warning we do not wish it to be thought that we consider that nothing can be done for the existing industries which, in the main, are calculated to supply common consumable necessities to those whose purchasing power is small. Inasmuch as within large portions of the Empire the demand for such goods is very great and inasmuch as Hong Kong is an Empire source of these goods, we think that everything possible should be done by the Government for these industries and that our recommendation for investigation and sympathetic aid rather than indifferent application of rigid rules should be adopted. It must be clearly understood that the goods we have in mind are those of the cheapest category and that Hong Kong is in competition with foreign cheap producing centres and not with the United Kingdom and Dominions which are not in a position to manufacture goods of this variety to compete with foreign supplies.

Chapter VIII.

PROPERTY.

1. The value of and investment in property, as a general rule depends upon the prosperity of the community. The attractions of the locality, either for trading, industrial, or social purposes create the demand which determines the value. Other factors however obtain in Hong Kong which tend abnormally to enhance or depreciate values. By reason of the Colony's security and freedom from undue taxation as compared with the unrest and insecurity existing at times in South China, property for many years has been a favourite investment for the Chinese in the neighbouring provinces of China. This state of affairs has un- doubtedly tended to create abnormally high values, bearing little relation to their present economic worth, and in times of depression these values naturally depreciate rapidly thereby resulting in the freezing up of large assets and savings of the community.

2. The accompanying table shows the growth of the rateable value of the Colony during the past twenty years. In 1934 the rateable value stood at $38,641,856. This figure capitalized on the basis of 7% per annum represents an investment in rateable property of no less than $550,000,000. This huge sum, large