ENG-1988 — Page 83

THE ECONOMY

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for Hong Kong's domestic exports. China is also the largest supplier of goods to Hong Kong. In 1988, China accounted for 29 per cent of Hong Kong's overall external trade (17 per cent of its domestic exports, 34 per cent of its re-exports, and 31 per cent of its imports). Reciprocally, Hong Kong overtook Japan to become China's largest trading partner in 1987, and accounted for 27 per cent of China's overall external trade in that year (35 per cent of its exports and 19 per cent of its imports).

On entrepôt trade, China has, since 1979, been Hong Kong's largest re-export market as well as the largest source of goods re-exported through Hong Kong. In 1988, nearly 80 per cent of Hong Kong's re-exports were related to China, either as a market or as a source of supply.

Besides merchandise trade, various forms of invisible trade between Hong Kong and China also increased. These included tourism and travel services, transport services, financial services, and professional and other business services.

In 1988, about 16.5 million trips were made to China by Hong Kong residents. Another 1.2 million trips were made to China through Hong Kong by foreign visitors, reflecting Hong Kong's position as a convenient gateway to China for business and tourism.

In line with the growth in trade and in passenger movements, the demand for transport services between Hong Kong and China has grown substantially in recent years. For cargo transport, the average annual growth rates in tonnage terms between 1979 and 1988 were about 10 per cent for inward cargo from China and about 49 per cent for China-bound outward cargo. Part of these cargo movements were transhipments. Most of the cargo was transported by water, although an increasing proportion was carried by road. Passenger traffic grew by an average of 21 per cent per annum between 1979 and 1988. The increase was mainly in trips by rail and, to a lesser extent, by water and air.

Reflecting the increased financial links between Hong Kong and China in recent years, the external liabilities of Hong Kong's financial institutions to banks in China rose from $213 million at the end of 1979 to $59.1 billion at the end of 1988. During the same period, the external claims of Hong Kong's financial institutions on banks and other enterprises in China rose from $5.9 billion to $99.9 billion. Apart from being a source of funds, Hong Kong has also provided China with access to the world's major financial markets. The business of the Bank of China Group in Hong Kong has grown substantially since the late 1970s, as reflected by its much enlarged retail banking network and the increasing variety of financial services it offers.

With regard to investment, Hong Kong's direct investment in China has been concen- trated in light manufacturing industries such as electronics, plastics, textiles and wearing apparel, and in hotels and tourist-related facilities. Most of the investment is in joint ventures of various forms with Chinese enterprises. Hong Kong is now the most important source of external investment in China, accounting for 50 to 70 per cent of the total. Moreover, many Hong Kong manufacturers have established compensation trade and outward processing arrangements with Chinese enterprises, mainly those in the Pearl River Delta region and the Shenzhen Special Economic Zone. On the other hand, enter- prises involving Chinese interests have increased their investment in Hong Kong in recent years. Their activities have also diversified from the traditional banking, and trade and related activities, like transportation and trade financing, to such new areas as property development, stock broking, manufacturing, supermarkets, hotels and infrastructural projects.

The growing economic relations between Hong Kong and China have brought great bene- fits to both economies, and have added a new dimension to Hong Kong's economic growth.