ENG-1985 — Page 12

HONG KONG IN TOUCH WITH THE WORLD

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War-battered Hong Kong began to rebuild both its physical structure and the entrepôt role that had successfully been expanded in the pre-war years, only to find the process hobbled by another conflict, this time in Korea. Once more the territory stood both to lose and to gain from a significant external influence. By gouging a hole in the traditional entrepôt trade, the United Nations ban on trading with China during the Korean War forced Hong Kong to reassess its economic prospects and realign its industries in the first of several substantial economic swings which have marked its development in the past 35 years.

In the following decade, Hong Kong was well placed to take advantage of the influx of skills and capital which followed the Communist takeover in China in 1949. This provided a spur to manufacturing and particularly the production of light manufactured goods including textiles. While clothing exports had been only one-twentieth of the value of total exports in 1951, by 1962 they represented over one-third of domestic exports. Contemporaneously, the United States and the United Kingdom replaced China as Hong Kong's biggest export markets.

Manufacturing, and the exports of its products, was the cornerstone of Hong Kong's economy through the 1960s. Although textiles and clothing remained dominant, other product areas, such as toys, dolls and electronic goods, began to grow in importance. In the 1970s, the economic base continued to diversify and mature to such an extent that, despite ever increasing output, manufacturing industry was overtaken by the steadily expanding financial and service sector.

By 1980, the manufacturing sector's relative contribution to GDP had fallen, while that of the financial and related services sector had risen to the point where both sectors were making nearly equal contributions of just under one quarter of GDP, completing another significant change of emphasis in Hong Kong's economy. While it is difficult to be precise about when such broad economic changes began to take place, it was during the 1970s that Hong Kong businessmen began to appreciate the need for diversification if the economy's rate of expansion was to be sustained.

Hong Kong people have been described as having an almost instinctive grasp of economic reality, and as being pragmatic in outlook. These characteristics make them tend to accept that some of the economic losses imposed by external adversity cannot be avoided, and that such costs are best minimised by the economy adjusting rapidly to restore external competitiveness.

This pragmatism is evident in the response of Hong Kong's industrialists to the pressures of the 1980s: increasing competition from neighbouring countries, rising production costs, ever tighter quota restrictions. The response was to move up-market, to increase the value per unit of output, and to diversify into new, more sophisticated product areas.

Thus, while maintaining its strong base in the traditional textile and clothing industries, Hong Kong began to move increasingly into other industries, such as optical goods, metal and chemical products, and especially electronics manufacturing of all types. So rapid was growth in this sector that domestic exports of electronic products in 1984 were worth $24,600 million, making electronics the second largest export earner among manufactured products. Some 1 500 factories were turning out a huge range of electronic products, from integrated circuits, liquid crystal displays, calculators, microcomputers and television receivers to cordless telephones and telephones with memories and automatic re-dialling functions. Nearly half of the total domestic exports of electronic products were tele- communications and sound recording and reproducing equipment. Hong Kong also