ENG-1999 — Page 76

THE ECONOMY

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the Mainland, the value of two-way trade grew at a more moderate pace in the more recent years, at an annual average of 7 per cent between 1993 and 1998. Growth slowed down further in 1999, to only 1 per cent, with an increase of 5 per cent in imports from the Mainland being offset by decreases of 2 per cent and 10 per cent respectively in re-exports and domestic exports to the Mainland. In 1999, the Mainland was still Hong Kong's largest trading partner, accounting for 39 per cent of Hong Kong's total trade. 90 per cent of Hong Kong's re-export trade was related to the Mainland, making it the largest market for as well as the largest source of Hong Kong's re-exports. Reciprocally, Hong Kong was the Mainland's third largest trading partner in 1999 (just behind Japan and the United States), accounting for 12 per cent of the Mainland's total trade.

Over the past two decades, there has also been a substantial increase in invisible trade and investment flows between Hong Kong and the Mainland. At present, Hong Kong is a major service centre for the Mainland generally and South China in particular, providing a wide range of financial and other support business services such as banking and finance, insurance, transport, accounting and sales promotion. It is also a principal gateway to the Mainland for business and tourism. In 1999, 45 million trips were made by Hong Kong residents to the Mainland, representing an increase of 15 per cent over 1998. The number of trips made by foreign visitors to the Mainland through Hong Kong also went up, by 14 per cent to 2.5 million.

Hong Kong has continued to be the largest source of external direct investment in the Mainland. According to an official data source from the Mainland, the cumulative value of Hong Kong's realised direct investment there amounted to US$151 billion at end-September 1999, accounting for about 51 per cent of the total value of its inward direct investment. There has been a notable shift in the composition of Hong Kong's direct investment in the Mainland in the more recent years, from industrial processing to a wider spectrum of business ventures such as hotels and tourist-related facilities, real estate and infrastructure development. Relative to other places in the Mainland, Hong Kong's economic links with Guangdong are much more intimate. At end-1998, the cumulative value of Hong Kong's realised direct investment in Guangdong was estimated at US$56 billion, accounting for about 76 per cent of the total for the province. Currently, over five million Chinese workers are said to be employed in the province by industrial ventures with Hong Kong interests. This is about 20 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 the Mainland to Hong Kong over the past years. At end-1998, the Mainland had invested a total of US$28 billion in Hong Kong, making it amongst the largest external investors in the SAR. More than 1 800 Mainland enterprises operate in Hong Kong. While these enterprises maintain high investment stakes in such traditional lines of business as import/export trade, wholesale/retail trades, banking, transport and warehousing, there has been a growing diversification of their investment into other spheres such as real estate, hotels, financial services, manufacturing and infrastructure development.

Along with the surge in two-way trade, investment and people flows, financial links between Hong Kong and the Mainland have also been on a rapid increase over the past two decades. Yet in 1998 and 1999, the growth momentum slowed down considerably upon the impact of the regional financial turmoil. By end-December