ENG-1986 — Page 73

THE ECONOMY

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relatively low growth rate of Hong Kong's domestic exports to China in 1986 was partly a reflection of China's tightening of control since April 1985 over its foreign exchange spending. But the recovery in the growth rate since the second quarter of 1986 suggests that the effect on Hong Kong's exports of the control measures may have been absorbed.

In terms of the major product categories, domestic exports of clothing grew by about 13 per cent and of textiles by about 42 per cent in real terms in 1986; they accounted for 34 per cent and seven per cent respectively of the total value of domestic exports. Substantial increases were also recorded for domestic exports of watches and clocks (about 17 per cent in real terms), domestic electrical appliances (about 12 per cent), and radios (about 27 per cent). As regards domestic exports of other products, the growth rate in 1986 was about 16 per cent in real terms.

At 16 per cent in money terms or about 14 per cent in real terms, the growth rate of re-exports in 1986 was lower than that recorded in 1985, at 26 per cent in money terms or 25 per cent in real terms. This slowdown was largely attributable to reduced re-exports to China, reflecting the measures adopted by China in early 1985 to restrict its imports and control its foreign exchange spending. Apart from China, the other major re-export markets were the United States, Japan, Taiwan, the Republic of Korea and Singapore. Nevertheless, re-exports of China origin through Hong Kong to overseas markets grew substantially in 1986, reflecting China's efforts in promoting its exports and the use of Hong Kong as a shipping outlet. Apart from China, the other major origins of re-exports were Japan, the United States and Taiwan. When analysed by end-use categories, a significant proportion of the re-exports through Hong Kong comprised raw materials and semi- manufactures, and consumer goods, representing 40 per cent each of the total value of re-exports in 1986. Re-exports of textile yarn, fabrics and made-up articles, clothing, travel goods, and miscellaneous manufactured articles showed more rapid increases in real terms compared with other items.

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Imports grew by 19 per cent in money terms or about 14 per cent in real terms in 1986, compared with the corresponding growth rates of four per cent and six per cent in 1985. The major sources of imports were China, Japan, Taiwan, the United States, Singapore and the United Kingdom. With the slowdown in re-export trade, much of this growth was derived from a substantial increase in retained imports, at about 13 per cent in real terms. In particular, retained imports of raw materials and semi-manufactures and of consumer goods grew by about 20 per cent and seven per cent respectively.

As the value of total exports (domestic exports plus re-exports) exceeded the value of imports, a visible trade surplus of $0.6 billion, equivalent to 0.2 per cent of the total value of imports, was recorded in 1986, compared with the visible trade surplus of $3.7 billion, equivalent to 1.6 per cent of the total value of imports, recorded in 1985. As the growth rate in real terms of total exports was roughly the same as that of imports, the smaller visible trade surplus was largely attributable to a deterioration in the terms of trade following the depreciation of the Hong Kong dollar during the year.

Domestic demand

The growth rate of domestic demand in 1986, at seven per cent in real terms, was higher than that recorded in 1985, at two per cent. Within domestic demand, private consumption expenditure is a major component. Reflecting the improvement in the employment situation and in labour incomes, private consumption expenditure grew by seven per cent in real terms in 1986, compared with a five per cent growth recorded in 1985. Government consumption expenditure grew by five per cent in real terms. This was higher than the two