ENG-1989 — Page 74

THE ECONOMY

tion of China's austerity measures, have contributed to a slackening in Hong Kong's exports to China. Despite this slow-down, China remained the largest market for Hong Kong's re-exports and the second largest market for Hong Kong's domestic exports. About 50 per cent of Hong Kong's total exports to China was related to outward processing trade. China was also the largest supplier of goods to Hong Kong, although a predominant proportion of these goods were re-exported. In 1989, China accounted for 30 per cent of Hong Kong's overall external trade (19 per cent of its domestic exports, 30 per cent of its re-exports, and 35 per cent of its imports). Reciprocally, Hong Kong overtook Japan to become China's largest trading partner in 1987. In 1988, Hong Kong accounted for 29 per cent of China's overall external trade (38 per cent of its exports and 22 per cent of its imports).

In entrepôt trade, China has been the largest re-exports market for Hong Kong since 1980. It has also long been the largest source of goods re-exported through Hong Kong. In 1989, 81 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 have also increased rapidly since the adoption of open-door policies in China. These included tourism and travel services, transport services, financial services, and professional and other business services.

Hong Kong has been providing a convenient gateway to China for business and tourism. In 1989, about 15 million trips to China were made by Hong Kong residents, and another 1 million trips to China were made by foreign visitors through Hong Kong. These were, however, eight per cent and 16 per cent respectively lower than in 1988, mainly because of the impact of the events in China in mid-1989.

Given the slow-down in trade and in passenger movements, the rapid growth in transport services between Hong Kong and China since 1979 decelerated in 1989. On cargo transport, the volume of inward cargo from China showed little change, while China-bound cargo increased by nine per cent, in the first three quarters of 1989, compared with the same period in 1988. The corresponding increase in tonnage terms between 1979 and 1988 averaged about 11 per cent and 49 per cent per annum. Part of these cargo movements were transhipments. Most of the cargo was transported by water, although an increasing proportion was carried by road. With passenger traffic, there was an eight per cent decline in 1989 over 1988. The corresponding increase between 1979 and 1988 averaged 21 per cent per annum. An increasing proportion of the passenger trips were made by air in recent years.

Hong Kong's direct investment in China has been concentrated in light manufacturing industries such as electronics, plastics, textiles and wearing apparel. Investment in hotels and tourist-related facilities and in infrastructure has also been undertaken. Most investment is in joint ventures of various forms with China enterprises. Hong Kong is the most important source of external investment in China, accounting for about 70 per cent of the realised total. Moreover, many Hong Kong manufacturers have established compen- sation trade and outward processing arrangements with Chinese entities, located mainly in the Pearl River Delta region and the Shenzhen Special Economic Zone.

China's investment in Hong Kong has increased greatly in recent years and has diversified into practically all major economic sectors. Besides the traditional banking, trade, and trade-related activities like transportation and warehousing, new areas of invest- ment include manufacturing, property development, infrastructural projects, supermarkets and hotels.

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