ENG-1989 — Page 73

THE ECONOMY

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Market diversification is the combined result of the initiatives taken by local manu- facturers and exporters, and the promotion efforts financed by the government. Since the late 1950s, the United States has been the largest market for Hong Kong's domestic exports, in place of the United Kingdom. Gradually, the share of domestic exports going to such countries as the Federal Republic of Germany, Japan, Canada and Australia, and to the South-east Asian economies has also increased. In recent years, China has become the second-largest market for Hong Kong's domestic exports. In addition, Hong Kong has diversified into other new markets, including countries in the Middle East, Eastern Europe, Latin America and Africa.

The Service Sectors

Over the past decades, the rapid growth in external trade has not only enabled Hong Kong to build up a strong manufacturing base, it has also provided the underlying conditions for the service sectors to flourish. Of particular note was the rapid growth and development in finance and business services, including banking, insurance, real estate, and a wide range of other professional supports.

The prominence of entrepôt trade re-emerged in the late 1970s as China adopted open-door economic policies to facilitate its modernisation drive. Hong Kong, as a strategic gateway to China, was well positioned to take advantage of these opportunities. Trading and other economic links between Hong Kong and China thus increased rapidly.

Over the years, Hong Kong has developed an efficient wholesale and retail network to cater for the growing consumption needs of a more affluent population. Supermarkets, large department stores and modern shopping centres have become increasingly popular. The rapid growth in tourism since the 1970s has reinforced this development. Restaurants and hotels have also experienced a substantial increase in their volume of business. Furthermore, with increased household incomes, there was a growing demand for services of a better quality to meet the rising standard of living. Thus services in the community, social and recreational fields have also grown substantially.

Given its strategic location in relation to China and the Asia-Pacific region as a whole, as well as between the East and the West, and given its excellent communications network, efficient infrastructure and well-established services, Hong Kong has developed into the hub for trade, finance and business services in the region.

Between 1979 and 1989, exports of services rose at an average annual rate of nine per cent in real terms, while imports of services had a corresponding increase of 12 per cent. The major components of Hong Kong's invisible trade are shipping, civil aviation, tourism and various financial services.

Increasing Economic Links between Hong Kong and China

China's adoption of open-door economic policies since 1979, in support of its modernisation programmes, has led to a rapid increase in economic links between Hong Kong and China, with a profound impact on the growth and development of the Hong Kong economy.

China has been Hong Kong's largest trading partner since 1985. In 1989, the total value of merchanise trade between Hong Kong and China amounted to $343 billion, repre- senting an increase of 19 per cent over 1988. This growth rate was, however, significantly lower than the average annual increase of 39 per cent between 1978 and 1988. A setback in outward processing activities across the border, which was caused partly by supply bottlenecks in China and partly by slow growth in overseas demand, and the intensifica-