ENG-2003 — Page 79

THE ECONOMY

printing and publishing, food processing and metal products. Generally speaking, those manufacturing operations still remaining in Hong Kong are more knowledge- based with a higher value added and a greater technology content. Between 1993 and 2003, labour productivity in the local manufacturing sector, as measured by the ratio of the industrial production index to the manufacturing employment index, rose visibly, by an annual average of around 6 per cent.

In 2003, the United States and the Mainland were the two largest markets for Hong Kong's domestic exports, accounting for 32 per cent and 30 per cent respectively of the total. Other major markets included the United Kingdom (6 per cent), Germany (4 per cent), Taiwan (3 per cent), Japan (2 per cent), and the Netherlands (2 per cent). In the more recent years, new markets have been developed for Hong Kong's exports, including markets in the Middle East, Eastern Europe, Latin America and Africa.

Increasing Economic Links between the HKSAR and the Mainland

Since the Mainland adopted its economic reform and open door policy in 1978, economic links between Hong Kong and the Mainland have gone from strength to strength. This has brought substantial economic benefits to both places.

Visible trade between Hong Kong and the Mainland has expanded rapidly since 1978, at an average annual rate of 22 per cent in value terms. But the pace of growth moderated in the more recent years, to an annual average of 8 per cent during 1993- 2003, partly due to increased direct shipment of goods into and out of the Mainland upon enhancement of port facilities and simplification of customs procedures there. The Mainland remained Hong Kong's largest trading partner in 2003, accounting for 43 per cent of the total trade value in Hong Kong. The bulk (specifically, 91 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 2003 (after Japan and the United States), accounting for 10 per cent of the Mainland's total trade value (Chart 6).

In the more recent years, there has been an increasing shift in the mode of Hong Kong-Mainland trade from re-exports to offshore trade. Between 1990 and 1995, Hong Kong's exports of trade-related services grew at an annual average rate of 5 per cent in real terms, much slower than the growth in re-exports involving the Mainland, at an annual average rate of 22 per cent. The growth pattern was reversed during 1995 to 2003, when exports of trade-related services surged at an average annual rate of 15 per cent in real terms, outpacing the growth in re-exports involving the Mainland, at an average annual rate of 7 per cent.

Over the past two decades, there has also been a sharp increase in people, service and investment flows between Hong Kong and the Mainland. Hong Kong is a major service centre for the Mainland generally and South China in particular, providing a wide array of financial and other business support services like banking and finance, insurance, transport, accounting and sales promotion.

Hong Kong is also a principal gateway to the Mainland for business and tourism. Between 1993 and 2003, the number of trips made by Hong Kong residents to the Mainland grew at an average annual rate of 9 per cent to 53 million trips, and the number of trips made by foreign visitors to the Mainland through Hong Kong at an average annual rate of 4 per cent to 2.7 million trips. Yet, mainly due to the outbreak

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