ENG-1986 — Page 22

HONG KONG AS A PARTNER IN WORLD TRADE

5

Admittedly, there were still plenty of ups and downs and traumas to come along the way. In the mid-1960s, for instance, the over-extension of credit to feed the property boom led to a banking crisis in 1964–5 and this was quickly followed by the 'Star Ferry' riots of 1966 and the disturbances of 1967. The collapse of the stock market bubble in 1973 was followed by the sharp world recession in 1974–5, after the first oil shock. In the early eighties, the puncturing of an even larger property boom coincided with another world recession and the political uncertainties surrounding the commencement of negotiations on the future of the territory. The important lesson to learn, however, is not that these internal and external shocks occurred. They are almost inevitable in a rapidly changing and turbulent world. It is that the Hong Kong economy and Hong Kong society were strong and resilient enough and, above all, flexible enough, to absorb all the shocks, to adjust to them and to emerge beyond them, ready again to resume the upward path of growth.

In virtually every instance the effect of the shock, whether internal or external, was to produce a coiling and tightening of the competitive springs within the economy, followed by a renewed surge of exports and growth generally. This was true in 1968 and 1969 following the mid-sixties shocks, in 1976 after the oil crisis recession, and in late 1983 and 1984 following the second jump in oil prices and the recession in the early eighties.

Of crucial importance, however, was that, by the sixties, the economy was generating enough savings to finance from its own resources the capital investment necessary to generate and underpin its growth, above all through the expansion of exports and trade. In other words, it had achieved a state of self-sustaining growth.

Since the mid-sixties, investment (or gross domestic fixed capital formation) has never fallen below 16 per cent of the GDP. It accelerated sharply through the seventies and reached a high of over 33 per cent of the GDP in 1980 and 1981. In particular, investment in plant, machinery and equipment has been on a steadily rising trend in real terms. Although overseas capital and expertise have played an important part, particularly in the introduc- tion of new technology, most of the investment has been generated from domestic sources. It is this capital investment, in an environment of competitive market forces, which has generated the very considerable increases in labour productivity and hence the expansion of output and the rise in real wages which has been witnessed over the period.

The increase in output, in turn, has expressed itself in an almost continuous increase in exports and, for that matter, also in imports. Only in two years since the early sixties, namely during the world recessions in 1974 and 1982, have total exports dipped in real terms. By 1985, total exports were almost 7.5 times bigger than in 1966. The trend in the development of trade is illustrated in Table 2.

Table 2

Growth in Volume of Trade 1966–85

($ million at constant 1980 prices)

Domestic

Index

exports (1966 = 100)

Re-exports

Index

Total Exports

Index

Imports Index

1966

16,655

100

5,126

100

21,781

100

27,235

100

1971

30,846

185

7,853

153

38,704

178

45,888

168

1976

44,690

268

13,842

270

58,532

269

62,092

228

1981

73,716

443

38.598

753

112,314

516

125,336

460

1985

91,146.

547

70,255

1 370

161,401

741

163,417

600

Source: Compiled from Estimates of Gross Domestic Product 1966 to 1985, Census and Statistics Department 1986.