ENG-1976 — Page 27

TWO DECADES OF ECONOMIC ACHIEVEMENT

Role of the Public Sector

As there has always been a relatively small public sector in Hong Kong, the monetary consequences of fiscal policy have not been significant. The history of public finances is set out in Chapter 3 and it is sufficient here to note the long run of surpluses in the public sector, which will have contributed a very small restraining influence on the growth in the stock of money during the post-war years.

In line with this small net impact of the public sector, there has existed an en- vironment which has been sympathetic to maximising returns from economic activity. Consistent with this is the history of low tax rates on earnings and profits. Yet these low rates have not precluded the development of the economic and social infrastruc- ture necessary for fast development. The compactness of Hong Kong has enabled much to be achieved at a low level of public expenditure.

Trade

With a rapidly growing labour force, a well developed financial and commercial sector, established external communications, and a sympathetic public environment, the Hong Kong economy was able to take advantage of the favourable changing climate of world trade.

The trend growth of world trade accelerated from the early fifties up to 1973. Average annual rates of growth in the volume of world exports were: 5.3 per cent from 1950-8; 7.4 per cent from 1958-61; 7.3 per cent from 1961-7; and 10.2 per cent from 1967-73. Due to the world recession, the volume of world exports from 1973-5 suffered a temporary setback, with an average annual growth rate of only 0.6 per cent.

per-cent.

In addition to growth, Hong Kong benefited from various measures to liberalise trade. The most important event for Hong Kong was the dismantling of many wartime balance of payments controls, which culminated with the adoption in 1958 of the code of liberalisation by the Organisation of European Economic Co-operation and the return to convertability. This liberalising of trade not only benefited member coun- tries but also dependent territories. As a colony, Hong Kong had greater access to many of these markets.

Various rounds of tariff reductions organised by the General Agreement on Trade and Tariffs (GATT) also helped to expand world trade and enabled Hong Kong to sell a growing volume of exports. The Dillon round took place in 1960–1 and was im- plemented from 1962. Of greater importance was the Kennedy round of tariff reduc- tions, which was implemented in 1968.

Early Post-War Years

It is against this background of international trade that Hong Kong's export industries developed from the mid fifties. But the post-war years up to that time also need to be taken into account. Hong Kong emerged from the enemy occupation with a run down economy and a population that had decreased by a million to about 600,000. The territory's livelihood was still predominantly dependent on entrepot