ENG-1994 — Page 92

THE ECONOMY

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Re-exports of telecommunications and sound recording and reproducing equipment, electrical machinery, appliances and parts, as well as textiles, registered faster increases than re-exports of other commodity items.

Domestic exports recorded zero growth in value terms in 1994. After allowing for price increases, there was a decline of about two per cent in real terms. This compared with a decline of five per cent in value terms, or four per cent in real terms, in 1993. The performance of domestic exports improved, however, as the year progressed. Following a 10 per cent decrease in real terms in the first quarter, the year-on-year rate of decline moderated to two per cent in the second quarter. Domestic exports then showed virtually no growth in the third quarter, and recovered to register a growth of about two per cent in the fourth quarter.

Analysed by major markets, domestic exports to China fell by about five per cent in real terms in 1994, compared with a two per cent increase in 1993. A large proportion of these domestic exports were related to outward processing arrangements commissioned by Hong Kong companies. While domestic exports to Singapore and Japan rose by about five per cent and three per cent, respectively, in real terms in 1994, those to the United States of America recorded a small decline of about one per cent in real terms. Domestic exports to Germany and the United Kingdom remained weak, declining by about nine per cent and eight per cent, respectively, in real terms. Domestic exports to a number of economies in the Asia- Pacific region, however, remained robust.

Supported by the strong growth in both re-exports and retained imports, imports rose significantly by 17 per cent in value terms, or about 14 per cent in real terms, in 1994. This compared with an increase of 12 per cent in value terms, or 13 per cent in real terms, in 1993. The major sources of Hong Kong's imports were China, Japan, Taiwan and the United States of America.

The growth rate of retained imports picked up sharply in 1994, by 19 per cent in value terms or about 14 per cent in real terms. Among the various end-use categories, retained imports of fuels showed the fastest increase, up by about 50 per cent in real terms. This was followed by retained imports of foodstuffs, consumer goods, capital goods, and raw materials and semi-manufactures, with respective increases of about 15 per cent, 15 per cent, 12 per cent and 11 per cent.

With the value of total exports (domestic exports plus re-exports) smaller than that of imports, a visible trade deficit of $81 billion, equivalent to 6.5 per cent of the total value of imports, was recorded in 1994. This compared with a deficit of $26 billion, equivalent to 2.5 per cent of the total value of imports, recorded in 1993. The larger visible trade deficit in 1994 was partly caused by a deterioration in terms of trade, as import prices rose faster than export prices. The significant replenishment of stocks, as well as greater import requirements for construction and for increased domestic exports in the latter part of the year, were also contributing factors.

Domestic Demand

Domestic demand grew by 11 per cent in real terms in 1994, representing a marked acceleration from the five per cent increase recorded in 1993. This was underpinned by the strong growth in investment demand and the significant replenishment of stocks during the year. Gross domestic fixed capital formation, as an overall measure of investment demand,