ENG-2004 — Page 80

50 | The Economy

Chart 6

Visible trade between Hong Kong and the Mainland

HK$ Billion

2000

1500

1000

500

0

Total trade value (left scale)

Year-on-year rate of change (right scale)

www

Per cent

40

0

30

30

A

20

10

-500

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Since the Mainland adopted its economic reform and open door policy in 1978, there has been a rapid expansion in merchandise trade, especially re- export trade, between Hong Kong and the Mainland.

-10

In 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 by an average of 5 per cent in real terms, much slower than the growth in re-exports involving the Mainland, at an annual average of 22 per cent. The growth pattern was reversed during 1995 to 2004, when exports of trade-related services surged by an average of 15 per cent in real terms, outpacing the growth in re-exports involving the Mainland, at an average of 8 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 1994 and 2004, the number of trips made by Hong Kong residents to the Mainland grew at an average annual rate of 9 per cent to 60 million trips, and the number of trips made by foreign visitors to the Mainland through Hong Kong at an average annual rate of 7 per cent to 3.6 million trips. In 2004, these two types of trips surged by 14 per cent and 33 per cent respectively, partly due to a low base of comparison caused by the outbreak of SARS in 2003.

Moreover, Hong Kong is the major source of external direct investment in the Mainland. The cumulative value of Hong Kong's realised direct investment in the Mainland amounted to US$242 billion at end-2004, accounting for 43 per cent of the total inward direct investment there. Over the years, there has been a noticeable shift in the composition of Hong Kong's direct investment across the boundary, from