ENG-1996 — Page 87

THE ECONOMY

largest trading partner in 1996. Its share in Hong Kong's re-export trade was even higher at 90 per cent, making China both the largest market for and source of Hong Kong's re-exports. Reciprocally, Hong Kong was China's third largest trading partner in 1996 (after Japan and the United State), accounting for 14 per cent of China's total trade.

Likewise, there has been a substantial increase in invisible trade and investment flows between Hong Kong and China. At present, Hong Kong is a major service centre for China generally and South China in particular, providing a wide range of financial and business support services like banking and finance, insurance, accounting, transport, warehousing etc. It is at the same time a principal gateway to China for business and tourism. In 1996, 29 million trips were made by Hong Kong residents to China and another 2 million trips were made by foreign visitors to China through Hong Kong. These represented increases of 9 per cent and 11 per cent respectively over 1995.

Moreover, Hong Kong is the largest source of external direct investment in China. By end-1996, the cumulative value of Hong Kong's realised direct investment in China reached about US$100 billion, accounting for about three-fifths of the total value. Also worthy of note is that there has been a notable shift in the composition of Hong Kong's direct investment in China in more recent years, from outward processing industries to other economic sectors such as hotels and tourist-related facilities, real estate and infrastructure development. Hong Kong's economic links with Guangdong are far more intimate than those with other places in China. At end- 1996, the cumulative value of Hong Kong's realised direct investment in Guangdong was estimated at US$40 billion, accounting for about 80 per cent of the total value. Currently, some four million Chinese workers are regularly employed in the Province by Hong Kong industrial ventures. This is more than 10 times the size of Hong Kong's own manufacturing workforce.

In the opposite direction, there has likewise been a sizeable flow of investment capital from China to Hong Kong over the past years. By end-1994, China invested a total of US$17 billion in the territory, making it the third-largest external investor, after the United Kingdom and Japan. While China maintains a high investment stake in such traditional lines of business as import/export trades, wholesale/retail trades, banking, transport and warehousing, there has recently been a growing diversification of such investment into other spheres such as real estate, hotels, financial services, manufacturing and infrastructure development.

Along with the surge in these cross-border trade, investment and people flows, financial links between Hong Kong and China have also been on a rapid increase over the years. By end-1996, external liabilities of Hong Kong authorised institutions to entities in China reached about $300 billion, while their external claims on entities in China were even larger, at about $360 billion. These represented increases of around 32 per cent and 24 per cent respectively over a year earlier. The Bank of China Group, which has been established here for decades, is now the second-largest banking group in Hong Kong after the HongkongBank Group. It started issuing Hong Kong dollar bank notes in May 1994. The other three state specialised banks, namely the People's Construction Bank of China, the Agricultural Bank of China, and the Industrial and Commercial Bank of China, were granted banking licences to operate in Hong Kong in 1995. On the other hand, the HongkongBank Group, the

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