ENG-1991 — Page 71

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THE ECONOMY

items within these groups. The pressure of protectionism and growing competition from other economies have resulted in local manufacturers intensifying their efforts to diversify, in respect not only of products but also markets. A significant proportion of Hong Kong's manufacturing output is eventually exported.

Manufacturing firms in Hong Kong must be flexible and adaptable in order to cope with the frequent changes in demand patterns and to maintain their external competitiveness. The existence of a large number of small establishments providing an extensive local sub-contracting system has greatly facilitated the necessary shifts in production and has helped to increase the flexibility of the manufacturing sector. Moreover, increasing use has been made of the outward processing facilities in China for handling the relatively labour-intensive production processes. Because of the limited amount of usable land, Hong Kong's manufacturing industries are mostly those which can operate successfully in multi-storey factory buildings. This, in practice, implies concentration in the production of light manufactures.

Over the past 30 years, many industries have emerged and grown, the most notable being plastics and electronics. The textiles and clothing industries, however, remain prominent. Other developing industries include fabricated metal products, electrical appliances, watches and clocks, toys, jewellery, and printing and publishing.

Of particular note is the significant upgrading in labour productivity within the - manufacturing sector over the years. During the period 1973 to 1989, the value of net output by the manufacturing sector grew at an average annual rate of 16 per cent, while manufacturing employment grew at an average annual rate of only one per cent. Even after taking into account the effect of price increases on the output value, a significant secular improvement in labour productivity was evident.

Within the manufacturing sector, the most significant change occurred in the textiles industry. The share of this industry in the net output of manufacturing declined from 27 per cent in 1973 to 16 per cent in 1989, while its share in manufacturing employment fell from 21 per cent to 15 per cent. Offsetting this decline was the expansion of the clothing, electrical appliances and electronics, and watches and clocks industries. Between 1973 and 1989, their shares in the net output of manufacturing increased from 20 per cent to 21 per cent, from nine per cent to 15 per cent, and from one per cent to four per cent respectively, while their shares in manufacturing employment increased from 26 per cent to 29 per cent, from 11 per cent to 13 per cent, and from one per cent to three per cent respectively.

Domestic exports in 1991 consisted principally of wearing apparel and clothing ac- cessories (33 per cent of the total value), electronics (25 per cent), textiles (eight per cent), watches and clocks (seven per cent), plastic products (three per cent), metal products (three per cent), and electrical household appliances (one per cent). In terms of the share in the total value of domestic exports, the most significant change over the past decade was the decline in the relative importance of clothing, from 35 per cent in 1981 to 33 per cent in 1991. This decline was offset by increases in the relative importance of such commodities as telecommunications and sound recording and reproducing equipment, electrical machinery and appliances, and office machines and data processing equipment. The combined share of these three commodity groups in the total value of domestic exports rose from 18 per cent in 1981 to 23 per cent in 1991.

Market diversification over the years has been the combined result of initiatives taken by local manufacturers and exporters, and promotion efforts supported by the government.