UBC Theses and Dissertations

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UBC Theses and Dissertations

Analytical study on the trade relations between the People’s Republic of China and Hong Kong Liu, Francis King-Yin 1977

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A N A N A L Y T I C A L STUDY ON THE T R A D E R E L A T I O N S BETWEEN THE P E O P L E ' S  R E P U B L I C OF CHINA  AND HONG KONG  FRANCIS K I N G - Y I N L I U B.Sc,  California  A THESIS  State  SUBMITTED  University,  Sacramento,  I N P A R T I A L F U L F I L L M E N T OF  THE R E Q U I R E M E N T S FOR THE D E G R E E OF M A S T E R OF S C I E N C E IN BUSINESS ADMINISTRATION in  the  Faculty of  Commerce and B u s i n e s s  Administration  We a c c e p t  as  to  this  the  thesis  required  THE U N I V E R S I T Y  standard  OF B R I T I S H C O L U M B I A  January,  Francis  conforming  1977  King-Yin Liu,  1977  1975  In p r e s e n t i n g t h i s  thesis  an advanced degree at the I  Library shall  f u r t h e r agree  for  scholarly  by h i s of  make i t  freely available  t h a t permission  for  the requirements  Columbia,  reference and  f o r e x t e n s i v e copying o f  It  for financial  i s understood that copying or gain s h a l l  not  permission.  University of B r i t i s h  2.075 W e s b r o o k Vancouver, V6T  Date  this  Place  Canada  1WS  January 14,  1977  Columbia  for  that  study. thesis or  publication  be allowed without my  Department of Commerce and Business A d m i n i s t r a t i o n The  I agree  purposes may be granted by the Head of my Department  thesis  written  fulfilment of  the U n i v e r s i t y of B r i t i s h  representatives.  this  in p a r t i a l  ii  ABSTRACT  T h i s study w i l l  examine the t r a d e r e l a t i o n s between  the People's R e p u b l i c of China  (P.R.C.) and Hong Kong,  h y p o t h e s i z i n g t h a t the f u t u r e t r a d e r e l a t i o n s h i p with other w i l l be maintained near f u t u r e due  each  and w i l l not be changed i n the  to the P.R.C.'s need f o r f o r e i g n exchange  and Hong Kong's need f o r f o o d s t u f f s .  I t i s f u r t h e r hypo-  t h e s i z e d t h a t t h i s economic c o e x i s t e n c e s i t u a t i o n w i l l  con-  t i n u e to e x i s t r e g a r d l e s s of the P.R.C.'s d i r e c t trade w i t h the West. First,  a d e s c r i p t i o n and a n a l y s i s of the growth and  development of the P.R.C.'s f o r e i g n t r a d e w i t h Hong Kong w i l l be presented.  Second, the r o l e of Hong Kong's t r a d e  w i t h the P.R.C. and t h e i r t r a d e r e l a t i o n s h i p w i l l evaluated.  be  L a s t l y , o p i n i o n s and i n s i g h t s w i l l be g i v e n  r e g a r d i n g the p o t e n t i a l t r a d e r e l a t i o n s h i p between the P.R.C. and Hong Kong i n the near f u t u r e . Hong Kong's present  s i g n i f i c a n c e i n the P.R.C.'s  trade i s the r o l e she p l a y s as a major source of f o r e i g n exchange f o r the P.R.C, which i s the r e s u l t of the trade imbalance and the remittance from overseas Chinese.  As  the  iii P.R.C. continues to do more business with the West, she has to o b t a i n more f o r e i g n exchange to f u l f i l l  the payments.  Therefore, the t i e between the two t r a d e p a r t n e r s i s expected to strengthen and w i l l not be changed i n the f o r e s e e a b l e future.  iv  T A B L E OF CONTENTS  Chapter I.  Page INTRODUCTION  1  P u r p o s e o f t h e StudyResearch Methodology Scope of the Investigation Hypothesis Importance of the Study II.  M A I N L A N D C H I N A ' S NEED F O R F O R E I G N E X C H A N G E Situation Confronting C r e a t i o n o f Huge Debt tance " G r a i n Import" P o l i c y Foreign Exchange Renminbi's Inconverti Hong Kong as a n I d e a l Exchange to China  III.  t h e Communist Due t o S o v i e t as  a Major  bility Supplier  . . . .  8  i n 1949 Assis-  D r a i n on  of  Foreign  HONG K O N G ' S NEED F O R I M P O R T E D F O O D S T U F F S  16  P o p u l a t i o n Growth L i m i t e d A r a b l e Land Food Problem IV.  HONG K O N G ' S 1975)  TRADE W I T H M A I N L A N D C H I N A  (1949-  32  T r a d e H i s t o r y B e f o r e 1952 Trade Under the F i r s t F i v e Year P l a n (19531957) Trade Under the Second F i v e Year P l a n (1958-1962) T r a d e R e l a t i o n s h i p F r o m 1963 To 1966 R e c e n t T r a d e D e v e l o p m e n t F r o m 1967 To 1975 V.  C O N C L U D I N G REMARKS  53  V  VI.  A MULTIPLE REGRESSION ANALYSIS OF CHINA'S EXPORT TO HONG KONG  64  Objectives R a t i o n a l e I n S e l e c t i n g V a r i a b l e s F o r Pred i c t i o n and C o r r e c t i n g Time S e r i e s Limitations S t a t i s t i c a l Methodology Summary o f R e s u l t s S t a t i s t i c a l Interpretation Comments APPENDIX ...  70  BIBLIOGRAPHY  76  vi  LIST OF TABLES Table 1. 2. 3.  Page G r a i n E x p o r t s t o Communist China, 1960/611963/64  12  Crude B i r t h , Crude Death, N a t u r a l Increase and P o p u l a t i o n Growth Rates, 1945-1971  17  Future Mid-Year P o p u l a t i o n P r o j e c t i o n f o r Hong Kong  4.  Food S i t u a t i o n of Hong Kong i n 1960  5.  P r o j e c t e d Aggregate Food Consumption, Product i o n , and Import Requirement, 1970, 1975, and 1980  21 25  27  6.  Employment by I n d u s t r i a l Group, 1961 and 1970  29  7.  Hong Kong's Trade With Mainland China, 19491952 Hong Kong's Trade With Mainland China, 19531957  33  8. 9.  34  Composition of Hong Kong's Imports from China, 1953-1957  36  10.  Overseas Chinese Remittances, 1950-1967  39  11.  China's R e c e i p t s From Food P a r c e l s , 1959-1964  40  12.  Hong Kong's Trade With Mainland China, 19581962 Composition o f Hong Kong's Imports from China, 1960  13.  14.  Hong Kong's Trade With Mainland China, 19631966  41 43  45  vii 15.  16.  17. 18.  General Consumer P r i c e Index i n Hong Kong, 1964, and 1970-1973  47  G r a i n s Imported from Canada and A u s t r a l i a , compared w i t h Money Earned from Hong Kong, 1958-1970  48  P o t e n t i a l Balance o f D i r e c t Merchandise Trade Between the U n i t e d S t a t e s and China i n 1980  59  U.S.-China  59  Trade, 1971-1975  viii  ILLUSTRATIONS Figure  page  1.  Crude B i r t h and Death Rates, 1948-1971  20  2.  P o p u l a t i o n Growth Rates, 1948-1971  20  3.  The Growth o f Hong Kong's P o p u l a t i o n  22  4.  Hong Kong Trade With China, 1950-1973  54  5.  China's Trade O r g a n i z a t i o n i n Hong Kong  57  1.  D i s t r i b u t i o n o f A r a b l e Land and Swamp i n Hong Kong  24  Map  CHAPTER I  INTRODUCTION  Purpose of the Study The  Chinese r e a d i n e s s to trade with Hong Kong, a  B r i t i s h colony, not o n l y would seem e x t r a o r d i n a r y i n the p o s t - c o l o n i a l e r a wherever i t were s i t u a t e d , but s u p e r f i cially  such i m p l i c i t acceptance  of the s i t u a t i o n  appears  i n c r e d i b l e when one c o n s i d e r s Hong Kong's p o s i t i o n as an enclave on what the Chinese r e g a r d as t h e i r t e r r i t o r y .  China  has been so e x p l i c i t l y h o s t i l e towards "the i m p e r i a l i s t s , " the C o l o n i a l system, and the "unequal  t r e a t i e s " and so  vehemently i n t e n t on r e d r e s s i n g the wrongs of the past t h a t i t s forbearance on t h i s i s s u e i s v e r y The  significant.  1  reason f o r China's w i l l i n g n e s s t o l i v e  with  the*;status quo i n Hong Kong can be found i n the very important trade s u r p l u s t h a t i t enjoys with the colony.  Large  q u a n t i t i e s of f o o d s t u f f s , l i v e animals, and even d r i n k i n g water are imported b l e currency.  i n t o Hong Kong and p a i d f o r i n c o n v e r t i -  In a d d i t i o n , the Colony  serves as a f u n n e l  f o r the t r a n s f e r of funds t o i n d i v i d u a l Chinese 1  from  their  2  overseas r e l a t i v e s .  I t also, s u r p r i s i n g l y , serves as a con-  d u i t f o r investment  i n China because of i t s balance of pay-  ments i m p l i c a t i o n s . I t i s Hong Kong i t s e l f , as a l a r g e urban p o p u l a t i o n area, r a t h e r than as a f i n a n c i a l c e n t r e or a focus f o r e n t r e pot t r a d e , t h a t i s important exchange.  The  to China as a source of f o r e i g n  s i t u a t i o n , i n e f f e c t , i s t h a t of a metro-  p o l i t a n r e g i o n t h a t pays f o r a l l k i n d s of c u r r e n t goods and s e r v i c e s i n f o r e i g n c u r r e n c i e s to the mainland. own  Hong Kong's  trade d e f i c i t with China can be estimated to f i n a n c e  some 80 per cent of China's t o t a l trade d e f i c i t w i t h Western Countries. The purpose of t h i s study i s to determine  the r e a -  sons f o r the growth and development of the P.R.C.'s t r a d e with the Colony of Hong Kong f o r the p a s t t w e n t y - s i x years (1950-1975), as w e l l as i t s p r o s p e c t s i n the f u t u r e . T h i s study a l s o conveys the i d e a t h a t Communist China simply cannot  a f f o r d to c o n s i s t e n t l y d i s r e g a r d economic  r e a l i t i e s f o r the sake of p o l i t i c a l g a i n s .  Research  Methodology The p r i n c i p a l method of r e s e a r c h i s a survey of  h i s t o r i c a l materials.  Sources of h i s t o r i c a l data on the  P.R.C.'s trade with Hong Kong i n c l u d e p e r i o d i c a l  and  3  government documents p u b l i s h e d by the Chinese Hong Kong government.  government and  S t a t i s t i c s and other supporting i n -  f o r m a t i o n have been c o n s o l i d a t e d from p u b l i c a t i o n s o f the Chinese  and Hong Kong government, newspapers, and r e l a t e d  academic r e s e a r c h .  Some a n a l y s i s o f the problems i s f u r -  nished by the U n i t e d Nations and c e r t a i n government  agencies.  A f i n a l p a r t of the study p r o v i d e s a backward s t e p wise r e g r e s s i o n a n a l y s i s o f China's  exports t o Hong Kong,  which t o a c e r t a i n extent, h e l p s to e x p l a i n and determine the important  f a c t o r s f o r her i n c r e a s i n g exports t o the  Colony.  Scope of the I n v e s t i g a t i o n T h i s study w i l l cover the trade r e l a t i o n s between the P.R.C. and Hong Kong f o r a p e r i o d of twenty-six y e a r s , i.e.  from 1950 t o 1975. F i r s t ,  China's  the u n d e r l y i n g reasons f o r  need f o r f o r e i g n exchange w i l l be d i s c u s s e d .  Second,  the f a c t o r s t h a t c o n t r i b u t e t o Hong Kong's r e l i a n c e on imp o r t e d f o o d s t u f f s w i l l be presented.  Third, a historical  d e s c r i p t i o n and d e t a i l e d a n a l y s i s o f the growth of the P.R.C.'s export trade with Hong Kong w i l l be demonstrated. Furthermore, t h e i r trade r e l a t i o n s :  Hong Kong's r o l e as a  major s u p p l i e r o f f o r e i g n exchange to the P.R.C, and the P.R.C as an important  e x p o r t e r o f f o o d s t u f f s t o Hong Kong  w i l l be d e s c r i b e d and e v a l u a t e d . trade aspects between these two  F i n a l l y , the "near f u t u r e " trade p a r t n e r s w i l l  be  covered.  Hypothesis T h i s study w i l l examine the h i s t o r i c a l trade between the P.R.C. and the Colony of Hong Kong.  relation  Because of  t h e i r past mutual trade t i e s and t h e i r present trade dependency, i t i s hypothesized between these two  t h a t the f u t u r e trade r e l a t i o n s h i p  t r a d i n g p a r t n e r s w i l l continue and  as long as Hong Kong r e l i e s on imported P.R.C.'s continuous imports.  f o o d s t u f f s and  the  need f o r f o r e i g n exchange to f i n a n c e her  I t i s f u r t h e r hypothesized  w i l l continue r e g a r d l e s s of C h i n a s 1  West.  expand  that t h i s  expansion  d i r e c t t r a d e with the  As China imports more from the West, she has to export  more so as to o b t a i n enough f o r e i g n exchange to f u l f i l  her  payment o b l i g a t i o n .  Importance of the Study Western t r a d e r s have been watching of China's  t r a d e p a t t e r n and  f o r the f u t u r e .  the development  s p e c u l a t i n g on i t s p r o s p e c t s  To a p p r a i s e the P.R.C.'s a b i l i t y to f i n a n c e  a s u b s t a n t i a l i n f l o w of Western producer  goods and  a l s o of food g r a i n , a knowledge of i t s past balance  perhaps of  5 payment experience, and of the present c o n d i t i o n , i s essential. However, developments i n r e c e n t years p l a i n l y i n d i c a t e t h a t p o l i t i c a l motives have not been the dominant f a c t o r i n Peking's t r a d e with non-Communist c o u n t r i e s .  For  the major p a r t of China's t r a d e w i t h the West, i t i s s t i l l t r u e t h a t imports are p r i m a r i l y d i r e c t e d towards breaking economic b o t t l e n e c k s and exports towards r a i s i n g the means of  payments f o r imports.  For i n s t a n c e , China has been im-  p o r t i n g l a r g e q u a n t i t i e s of food g r a i n s from Canada and A u s t r a l i a to a l l e v i a t e domestic food shortages, and e x p o r t i n g l a r g e q u a n t i t i e s of consumer goods to Kong Kong, Singapore and M a l a y s i a to augment her f o r e i g n exchange earnings from these c o u n t r i e s .  Only Hong Kong has d i p l o m a t i c r e l a t i o n s  with Peking, y e t no p o l i t i c a l p r e s s u r e s have been a p p l i e d to any of these n a t i o n s . ment on October Sino-Canadian  (Canada r e c o g n i s e d the Peking  13, 1970,  govern-  but d u r i n g the p r e v i o u s decade,  t r a d e had been c a r r i e d on without d i p l o m a t i c  recognition.) I t i s the author's d e s i r e to b r i n g forward the i d e a that the success of China's f u t u r e t r a d e w i t h the West r e s t s on the assumptions  t h a t the Chinese must be w i l l i n g to r e l y  on Western sources f o r high-technology imports, and must be prepared to engage i n t r a d e i n such a way  they  as to  6  maximize t h e i r own  exports and f o r e i g n - c u r r e n c y earnings  and thereby enhance t h e i r a b i l i t y to f i a n c e imports.  7  CHAPTER I NOTES  Claude E. Forget, China's E x t e r n a l Trade: A Canadian P e r s p e c t i v e . (Montreal: P r i v a t e Planning A s s o c i a t i o n of Canada, 1971), p. 43.  CHAPTER I I  MAINLAND CHINA'S NEED FOR  FOREIGN EXCHANGE  S i t u a t i o n C o n f r o n t i n g the Communists i n 1949 By the end of 1949,  the Communists had to d e a l with  the problem of r e h a b i l i t a t i n g t h e i r domestic economy which was  i n a c h a o t i c s t a t e a f t e r more than t h r e e decades of de-  v a s t a t i n g c i v i l upheaval and f o r e i g n wars. task f o r the Chinese Communists was  The  the c o n s o l i d a t i o n of  power through s t a b i l i z a t i o n and development economy.  central  of the n a t i o n a l  I n order to achieve economic r e c o v e r y and develop-  ment, the Communists looked to the S o v i e t Union as a model. From 1949  to 1954,  the Korean War  remains the s i n g l e  f a c t o r which made i t i m p o s s i b l e f o r China to i n i t i a t e  any  other f o r e i g n p o l i c y than the ' l e a n - t o - o n e - s i d e ' p o l i c y proclaimed by Chairman Mao outbreak of the Korean War,  i n 1949.  Immediately  a f t e r the  China's p o l i c i e s were neces-  s a r i l y d i c t a t e d by her primary needs,  both f o r s e l f - d e f e n c e ,  and f o r the r e b u i l d i n g of her devastated economy and the s e t t i n g up of an i n d u s t r i a l base.  Moreover,  a U.N.  had been p l a c e d upon her by the U n i t e d s t a t e s . 8  She  embargo was,  9 t h e r e f o r e , almost compelled to continue side,  t h a t i s to S o v i e t R u s s i a .  1  i n ideology also contributed  C r e a t i o n of Huge Debt Due  The  untested  commonality  to t h i s dependence.  to S o v i e t  S t a r t i n g from the year 1953, tance r e s u l t e d i n the formation s i d e ' f o r e i g n p o l i c y and  'leaning-to-one-  Assistance S o v i e t Union's a s s i s -  of China's  'lean-to-one-  the c r e a t i o n of s u b s t a n t i a l debt.  During China's F i r s t F i v e Year P l a n  (1953-1957), 141  indus-  t r i a l e n t e r p r i s e s were b u i l t w i t h the S o v i e t Union's h e l p . The  l a t t e r a l s o provided  of s c i e n t i f i c and S o v i e t experts The  t e c h n i c a l documents.  were dispatched  year 1956  Soviet r e l a t i o n s . suspended, but order  China with more than 21,000 sets  China was  as w e l l as 257  343  period.*  not only were S o v i e t  loans  a l s o f o r c e d to i n c r e a s e exports i n  to repay former debts due  from China, and  to China i n t h i s  marked the t u r n i n g p o i n t i n S i n o -  A f t e r 1959,  In J u l y 1960,  More than 10,000  1,390  f o r Soviet  Soviet  c o n t r a c t s and  experts  assistance. were withdrawn  supplementary agreements  t e c h n i c a l c o n t r a c t s were u n i l a t e r a l l y  can-  2 celled.  To  counteract  the S o v i e t withdrawal, s i n c e  China had  broadened her economic r e l a t i o n s with B r i t a i n ,  Germany, Japan, France and  Canada.  From those  China imported a l a r g e amount of machinery and  1961,  countries, equipment  10 to b u i l d up her economy.  Again, t h i s i s i n d i c a t i v e of  China's p o t e n t i a l demand f o r f o r e i g n  currency.  " G r a i n Import" P o l i c y as a Major D r a i n on F o r e i g n Exchange In the p e r i o d of 1959-1963, China's p o l i c y of concentrating  investment i n i n d u s t r y l e d to the n e g l e c t  agriculture.  T h i s unbalanced economic p o l i c y , combined  with the f a s t growing p o p u l a t i o n ,  r e s u l t e d i n the  of  inability  of a g r i c u l t u r e to support i n d u s t r i a l development. The  biggest  changes i n the import b i l l ,  came about not because of the  successes i n the machinery  s e c t o r but because of a ^ m a j o r e s h i f t t i e s of the planners i n Peking. had  been l e f t to i t s own  however,  i n the economic p r i o r i -  In the  resources,  1950s a g r i c u l t u r e  i n the hope t h a t output  c o u l d be r a i s e d by means of the mass m o b i l i z a t i o n of l a b o r f o r c o n s t r u c t i o n of i r r i g a t i o n and  But  the  weather and  bad  management combined to cause a sharp d e c l i n e of over 20  per  r e s u l t s were d i s a p p o i n t i n g ;  and  drainage works.  i n 1959  bad  cent i n farm output, g r e a t l y c o n t r i b u t i n g to a c r i s i s throughout the economy t h a t l a s t e d u n t i l 1962.  By  1961  China's economic l e a d e r s h i p knew that modern r e s o u r c e s , c l u d i n g scarce f o r e i g n exchange, had  in-  to be i n v e s t e d i n  a g r i c u l t u r e , even i f t h i s meant d i v e r s i o n s from the heavy  11 i n d u s t r i a l program.  The r e s u l t was  a d e c i s i o n to  import  5 to 6 m i l l i o n tons of wheat a year and a l s o to expand fertilizer  imports and domestic  t h e i r peak i n 1962,  fertilizer  production.  f o o d s t u f f imports accounted  At  for nearly  3 40 per cent of a l l Chinese It of  purchases  abroad.  i s known t h a t i n China, on average,  10 per  cent  c r o p l a n d i s a f f e c t e d by n a t u r a l c a l a m i t i e s each y e a r .  When t h i s average i n c r e a s e d to 15 or 20 per cent d u r i n g 4 the three bad y e a r s , a g r i c u l t u r e was Thus the Chinese  Communist l e a d e r s h i p had to face up to  the f u l l dimension Chinese  seriously affected.  of a c r i s i s  i n agriculture.  As a r e s u l t ,  l e a d e r s were f o r c e d to commit the country to a  g r a i n import  p o l i c y and  signed t h r e e - y e a r c o n t r a c t s f o r  l a r g e s c a l e shipments of g r a i n s from Canada and p l u s a d d i t i o n a l purchases Table 1 on page  Australia  from A r g e n t i n a and France,  (see  12)  Because of these purchases,  China has had l a r g e  d e f i c i t s i n her trade w i t h Canada and A u s t r a l i a — a b o u t $220 m i l l i o n i n 1962  and n e a r l y $300 m i l l i o n i n 1963.  5  Whatever the terms of payment, t h e r e i s no q u e s t i o n t h a t machinery imported imported  from B r i t a i n and Japan, or the g r a i n s  from Canada and A u s t r a l i a r e p r e s e n t a major d r a i n  on f o r e i g n exchange.  12 Table 1.  G r a i n Exports to Communist 1960/61-1963/64  China,  a  A l l Grains  ( i n thousands of m e t r i c tons) 1960/61  1961/62  1962/63  1963/64  Canada  1,139.9  2,471.7  1,701.3  1,276.6  Australia  1,449.1  2,137.8  2,085.5  2,661.9  Argentina  29.5  300.5  291.1  1,259.5  France  26.8  487.0  994.0  350.1  West Germany-  10.3  387.2  119.8  0.2  12.1  266.4  450.0  2,655.8  5,796.3  5,458.1  5,998.1  Other TOTAL  -  The data i n t h i s t a b l e a r e f o r years running from July to , June. I n c l u d i n g sorghum and m i l l e t s i n 1962/63 and 1963/64. Note: - stands f o r "none". Source:  Food and A g r i c u l t u r e O r g a n i z a t i o n of the U n i t e d N a t i o n s , World G r a i n Trade S t a t i s t i c s f o r 1960/61, 1961/62, 1962/63, and 1963/64~  Renminbi's I n c o n v e r t i b i l i t y S i n c e the Renminbi was of no v a l u e i n the i n t e r n a t i o n a l money market, i . e . t h e r e was no e s t a b l i s h e d market or p r i c e , Shinafhad tehfindhadway £6ris^lvea;thfc ypayiheiitt.'^t; 5  pi5ob.l,em^pro "bl a n * The Renminbi i s not o f f i c i a l l y l i n k e d to the g o l d standard.  Payment i s made i n f o r e i g n exchange a t a c u r r e n t  r a t e of about 2.3 Renminbi t o t h e U.S. d o l l a r .  But the  currency cannot be tendered on world markets."  At the p r e -  sent time the P e o p l e s R e p u b l i c o f China i s not a member o f 1  the I n t e r n a t i o n a l Monetary Fund, and i t s currency i s not r e a d i l y c o n v e r t i b l e i n t o Western c u r r e n c i e s .  S i n c e Chinese  currency i s not r e a d i l y c o n v e r t i b l e , the P.R.C. uses w i d e l y a c c e p t a b l e Western c u r r e n c i e s i n t r a d i n g with Western n a t i o n s and Japan.  Hong Kong as an I d e a l S u p p l i e r of F o r e i g n Exchange to China China has managed t o o b t a i n an ample amount of hard c u r r e n c i e s through t r a d e with Hong Kong.  As Hong Kong i s a  member o f the S t e r l i n g Bloc as w e l l as a f r e e p o r t , China can o b t a i n any k i n d o f c u r r e n c i e s under the 'no exchange c o n t r o l ' p o l i c y o f the Hong Kong government. For i t s p a r t , Hong Kong r e l i e d h e a v i l y on imports of f o o d s t u f f s from Mainland China as the Colony's economic growth and her p o p u l a t i o n i n c r e a s e d . r e s u l t e d i n a growing  I n f a c t the i n c r e a s e  demand f o r f o o d s t u f f s year a f t e r y e a r .  At the same time, Hong Kong's dependence on China's food s u p p l i e s was counter-balanced by China's dependence on Hong Kong as the p r i n c i p a l source o f f o r e i g n exchange. To conclude, Communist China a l s o has s i z e a b l e i n t e r e s t s i n Hong Kong.  I n 1973 t h e r e were 78 branches o f  P.R.C. or pro-P.R.C. banks o p e r a t i n g i n the Colony,  about  14 17 per cent o f a l l d e p o s i t s i n the Colony.  China has other  a s s e t s i n Hong Kong, i n c l u d i n g department s t o r e s , p r o p e r t y , schools and t r a d i n g o f f i c e s .  Some observers have estimated  that around 1972 China was d e r i v i n g as much as 40-50 per cent o f i t s f o r e i g n exchange from Hong Kong, e i t h e r or i n d i r e c t l y  directly  ( i . e . from exports t o o r v i a Hong Kong, r e m i t -  tances from Hong Kong, s a l e s i n Communist-owned s t o r e s , banking and t r a d e o p e r a t i o n s ) .  15  CHAPTER I I NOTES  *Chu-Yuen Cheng, Economic R e l a t i o n s Between Peking and Moscow, 1949-1963. (New York: Praeger P u b l i s h e r s , 1964), pp. 2-7. o  S u y i n Han, China i n the Year 2001. (Harmondsworth, Middlesex: Penguin Books L t d . , 1970), p. 79. 3 Alexander E c k s t e i n , Communist China* s Economic Growth and F o r e i g n Trade. (New York: McGraw H i l l , 1968), p. 107. 4 Jan S. P r y b y l a , The P o l i t i c a l Economy of Communist China. (Scranton: I n t e r n a t i o n a l Textbook Company, 1970), p. 349. 5 E c k s t e i n , op. e x t . , p. 229. L o u i s J . Mulkern, "The F i n a n c i a l Aspects of China Trade," i n Trade With China. (New York: American Management A s s o c i a t i o n Research Report, 1972), p. 20.  CHAPTER I I I  HONG KONG'S NEED FOR IMPORTED FOODSTUFFS  P o p u l a t i o n Growth The p o p u l a t i o n growth r a t e f o r Hong Kong over the past two decades has been v e r y e r r a t i c and a t times l y high (see Table 2 on page 17).  extreme-  P r i o r to 1964, with 1951  the o n l y exception, the p o p u l a t i o n growth r a t e exceeded 3 per cent i n every year.  F o r twelve o f these years i t \iras  equal t o o r g r e a t e r than 4 p e r cent p e r annum and i n s e v e r a l years above 5 p e r cent.  As a r e s u l t , the p o p u l a t i o n grew  from 600,000 a t the end o f the World War I I t o n e a r l y 4 m i l l i o n i n 1970.  Today, the p o p u l a t i o n i s around 4.2 m i l -  lion. For Hong Kong, p o p u l a t i o n growth i s the r e s u l t o f three f a c t o r s :  net immigration,  n a t a l i t y , and m o r t a l i t y .  P o p u l a t i o n growth d u r i n g the 1950's was dominated by immig r a t i o n ; however from 1960 onward, t h e n a t u r a l p o p u l a t i o n i n c r e a s e has been the primary growth r a t e .  f a c t o r i n determining the  From Table 2, which d i s t i n g u i s h e s immigration  from n a t u r a l i n c r e a s e i n the p o p u l a t i o n , i t can be seen t h a t 16  17 T a b l e 2.  Crude B i r t h , Crude Death, N a t u r a l Increase and P o p u l a t i o n Growth Rates, 1945-1981  Natural B i r t h r a t e Death r a t e Population r a t e of per per Population growth increase thousand thousand: Year a t mid-year (per cent) (per c e n t ) p o p u l a t i o n p o p u l a t i o n 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1976 1981  600, 000 1,550, 000 1,750, 000 1,800, 000 1,857, 000 2,237, 000 2,015, 300 2,125, 900 2,242, 200 2,364, 900 2,490, 400 2,514, 600 2,736, 300 2,854, 100 2,967 400 3,075 ,300 3,168 ,600 3,294 ,600 3,411 ,500 3,493 ,500 3,585 ,800 3,617 ,400 3,708 ,900 3,787 ,200 3,847 ,700 3,941 ,600 4,045 ,300 4,503 ,000 4,934 ,000  Source:  1945:  n.a. 158.3 12.9 2.9 3.2 20.5 -9.9 5.5 5.5 5.5 5.3 5.0 4.7 4.3 4.0 3.6 3.4 4.0 3.5 2.4 2.6 0.9 2.5 2.1 1.6 2.4 2.6 n.a. n.a.  n.a. 0.9 1.7 1.9 2.1 1.9 2.4 2.5 2.6 2.7 2.9 3.0 2.9 3.0 2.8 3.0 2.9 2.8 2.8 2.6 2.3 2.0 1.8 1.7 1.6 1.5 1.5 n.a. n.a.  n.a. 20.1 24.3 26.4 29.5 27.1 34.0 33.9 33.7 35.2 36.3 37.0 35.8 37.4 35.2 36.0 35.1 34.1 33.6 30.8 28.2 25.4 23.8 22.1 21.4 20.1 19.7 n.a. n.a.  n.a. 10.8 7.6 7.5 8.8 8.3 10.2 9.2 8.2 8.2 7.7 7.4 7.1 7.2 6.8 6.2 6.1 6.4 6.0 5.3 5.1 5.3 5.5 5.1 5.0 5.1 5.0 n.a. n.a.  E . F. Szczepanik, The Economic Growth of Hong Kong. (London: Oxford U n i v e r s i t y Press, 1958), p. 153. 1946-1960: Hong Kong Government, Hong Kong S t a t i s t i c s . 1947-1967. 1961-1970: Hong Kong Government, Hong Kong Monthly Digest of S t a t i s t i c s . J u l y 1971. 1971: I b i d . , January 1972. 1976«& 1981: Hong Kong Government 1966 By-Census: P o p u l a t i o n P r o j e c t i o n s , 1966-1981.  18 immigration was the prime cause of the e r r a t i c course of population  growth.  The mass immigration i n t o Hong Kong from China i n the  post-war  p e r i o d , 1945-1954, which i n c r e a s e d the popula-  t i o n by almost 300 per cent i n those nine y e a r s , can be d i v i d e d i n t o two d i s t i n c t waves.  The f i r s t wave of immigrants  came immediately a f t e r the war, 1945-1947.  A c c o r d i n g t o the  Hambro Report, "immediately a f t e r the war, i n 1945, 1946 and 1947,  the m a j o r i t y o f immigrants belonged t o the Hong Kong-  born group or t o the pre-war immigrants  who had l e f t Hong  Kong d u r i n g the war and r e t u r n e d a f t e r the Colony's tion."  1  libera-  Hambro a l s o estimated t h a t over 1.25 m i l l i o n people  moved i n t o Hong Kong d u r i n g t h i s p e r i o d b e f o r e the new communist government on the mainland imposed t i o n s i n 1950.  effective  The second wave o f immigrants  restric-  came i n 1949  and 1950 as the Chinese C i v i l war spread south and the Communists took power.  As the Hambro Report s t a t e s (see a l s o  Table 2) "a l a r g e p r o p o r t i o n of these immigrants out  came merely  o f f e a r of the m i l i t a r y o p e r a t i o n s and r e t u r n e d t o the  mainland as soon as the s i t u a t i o n was more or l e s s  settled."  A f t e r 1952, m i g r a t i o n from China g r a d u a l l y d e c l i n e d as a u t h o r i t i e s on both s i d e s o f the border began t o enforce tighter controls. in  The d r a s t i c e x c e p t i o n to t h i s r u l e came  1962 when the Chinese a u t h o r i t i e s threw open the gates at  the border and  allowed tens of thousands of people to  to Hong Kong ( i t was  b e l i e v e d t h a t China was  l e s s e n the economic burden and d i s a s t r o u s Great Leap Forward).  attempting to  release dissenters against  abandon i t s e s t a b l i s h e d p o l i c y of  p o l i t i c a l refugees and  the  I n f a c t , so many people f l e d  to the Colony t h a t the Hong Kong government was temporarily  flee  forced  to  harboring  f o r c i b l y returned many of them.  w i t h c l o s e c o n t r o l of the border, i l l e g a l immigration  Even still  occurs as thousands of people s t e a l i n t o the Colony every year.  Naturally,.the  i l l e g a l nature of immigration i n t o  Hong Kong makes p o p u l a t i o n  e s t i m a t i o n very hazardous.  More-  over, the f i r s t o f f i c i a l Census i n the post-war p e r i o d not conducted u n t i l was  1961.  conducted i n 1966 Natural  population  and  Since t h a t time, one a f u l l Census i n  increase also contributed  growth.  per cent i n 1960,  The  1971. significantly  but has  i n t o i t s two  demographic r e v o l u t i o n ,  The  (see F i g u r e  p a r t l y because of the  experienced a  1 on page 20) From f a l l e n 44 per  r a t e of n a t u r a l i n c r e a s e i s h i g h and low.  If  components, n a t a l i t y  the crude b i r t h r a t e has  the p o p u l a t i o n  to  s t e a d i l y d e c l i n e d s i n c e then.  and m o r t a l i t y , i t appears that Hong Kong has  to 1970  By-Census  r a t e of n a t u r a l i n c r e a s e rose to 3  t h i s r a t e i s separated  1960  was  cent.  the average age  of  P a r t l y because of a h i g h b i r t h r a t e , s e l e c t i v e e f f e c t of immigration,  only  F i g u r e 1.  A: B:  Crude B i r t h and Death Rates, 1948-1971 (per 1,000 p o p u l a t i o n )  Crude b i r t h r a t e Crude death r a t e  Source:  A: B:  Table 1  Total population Natural increase  Source:  Table 1  21 about h a l f o f the urban p o p u l a t i o n now are o f Hong Kong b i r t h . However, the problems which have r e s u l t e d from the o v e r a l l population r i s e  s i n c e 1945 are much wider i n scope  and have been exacerbated of Hong Kong. hills  by the r e s t r i c t i v e p h y s i c a l s e t t i n g  The 398 square m i l e s c o n t a i n many steep s i d e d  so t h a t the amount o f a v a i l a b l e f l a t l a n d i s l i m i t e d ,  p a r t i c u l a r l y near the harbour.  Yet i t i s p r e c i s e l y  l a t t e r area around which m e t r o p o l i t a n Hong Kong has and the three m i l l i o n people and the n o r t h e r n  this developed,  crammed onto the Kowloon p e n i s u l a  shore of Hong Kong I s l a n d have produced some  of the h i g h e s t p o p u l a t i o n d e n s i t i e s i n the world.^  Due t o the  h i g h d e n s i t y and l i m i t e d a r a b l e l a n d , Hong Kong w i l l have to face a severe food problem. (see Table  As p o p u l a t i o n continues  to expand  3 and F i g u r e 3 on page 22), the demand f o r imported  food w i l l c e r t a i n l y i n c r e a s e , Table  3.  (see Table 5 on page 27)  Future Mid-Year P o p u l a t i o n P r o j e c t i o n f o r Hong Kong  %  % 1976 •High" P r o j e c t i o n  increase from 1966  1981  increase from 1966  4, 926,000  32.0  5, 706,000  52.9  729,000  26.7  42.8  Second 'Medium' P r o j e c t i o n 4, 622,000  23.8  5, 330,000 5, 145,000  Third  4, 572,000  22.5  5, 061,000  35.6  4, 503,000  20.7  4, 934,000  32.2  First  'Medium' P r o j e c t i o n  'Medium' P r o j e c t i o n  'Low' P r o j e c t i o n Source:  4  ,  Hong Kong Government 1966 By-Census: P r o j e c t i o n s 1966-1981.  37.9  Populations  POPULATION (in million)  Figure  3.  The Growth of Hong Kong's P o p u l a t i o n  5m. 4.5m. 4m. P r o j e c t e d Increase ("Low" P r o j e c t i o n ) , (see Table 3)  3.5m. 3m. Source: 2.5m. -  James R e i d e l : The I n d u s t r i a l i z a t i o n of Hong Kong. ( T i i b i n g e n : Mohr, 1974), p. 49.  2m. 1.5m. lm. 0.5m. .  1  Year  1871  1901  r  1  •  1—-1—I  1931 1941 1951 1961  1  1  1976 198  L i m i t e d A r a b l e Land Hong Kong's a r a b l e l a n d i s mainly  s i t u a t e d i n the  p l a i n s and v a l l e y s below the 50 metre contour, tration—Map  (see  Illus-  1 on page 24) Of the 33,225 a c r e s of a r a b l e  l a n d i n the Colony's  o f 398  square m i l e s , about 64 per cent  i s under r i c e ; 29 per cent i s g i v e n over to v e g e t a b l e s ,  field  crops and orchards, and the r e s t i s abandoned or f a l l o w l a n d . Hong Kong r i c e i s consumed l o c a l l y but still  f a i l s to meet the requirements  population.  The  of the e v e r - i n c r e a s i n g  s i t u a t i o n has been aggravated  over i n r e c e n t y e a r s of some paddy f i e l d s i n t o l a n d by farmers higher r e t u r n s . about 2,119  production  by the changevegetables  to whom v e g e t a b l e growing b r i n g s q u i c k e r  and  In s p i t e of the i n t e n s e demand f o r food,  a c r e s of a r a b l e l a n d was  c l a s s i f i e d i n 1959-1960  as abandoned, due p a r t l y to an inadequate  supply of water f o r  i r r i g a t i o n and p a r t l y to the urban d r i f t of the r u r a l population. A g r i c u l t u r a l development i n the past was the New  mainly i n  T e r r i t o r i e s and to some extent on Hong Kong I s l a n d .  I t i s g e n e r a l l y r e s t r i c t e d to the a l l u v i a l lowlands lower  and  the  ends of v a l l e y s , where t h e r e i s a s u f f i c i e n t depth of  s o i l and water, so important Kong Annual Report  f o r 1960  in rice cultivation. states:  From a farmer's veiwpoint, a l l the r e a d i l y c u l t i v a b l e l a n d i s a l r e a d y being  The Hong  24 Map 1.  D i s t r i b u t i o n of A r a b l e and Swamp i n Hong Kong  Arable Swamp  Source:  C. S. L i a n g , Hong Kong, A P h y s i c a l , Economic and Human G e o g r a p h y . ( H o n g K o n g : C h e o n g Ming Press F a c t o r y , 1965), p. 51.  25 e x p l o i t e d and what i s l e f t , apart from l a n d a l i e n a t e d t o i n d u s t r i a l and urban use, i s marginal. Pressure comes on the l a n d from two d i r e c t i o n s , the continued and steadydemand f o r l a n d f o r i n d u s t r y and the need to meet the growing needs o f the r u r a l community. I t i s important t o remember t h a t 82 per cent o f the t o t a l a r e a o f the t e r r i t o r y i s m a r g i n a l l a n d , i n d i f f e r i n g degree of sub-grade c h a r a c t e r . The a r a b l e l a n d a l r e a d y e x p l o i t e d comprise o n l y 13 per cent of the t o t a l area and the expanding urban areas, the remaining 5 per cent tend to encroach more d i r e c t l y upon a r a b l e r a t h e r than open m a r g i n a l l a n d The  Colony produces approximately  3.5 p e r cent o f  the r i c e consumed, 70-75 per cent o f v e g e t a b l e  consumption,  and as f a r as can be a s c e r t a i n e d 25 per cent o f a l l the meat and p o u l t r y consumed.  The food s i t u a t i o n i n 1960 based on  value may be summarized as f o l l o w s : ^ Table 4.  Food S i t u a t i o n o f Hong Kong i n 1960  Imports  $1,353,232,495  l e s s re-exports  180.526.644  L o c a l primary p r o d u c t i o n  271,139,000  l e s s exports  129.959.394  Imports over exports Note:  $1,172,705,851  141.179.606 $1,031,526,245  f i g u r e s are i n Hong Kong D o l l a r s . The l o c a l p r o d u c t i o n of a l l k i n d s would thus  for  12 per cent of the food requirements  account  of the Colony,  though t h i s not t o say e s s e n t i a l food, as the above f i g u r e s include forest  products.  26 Farming i n Hong Kong, i t may phenomenon which must g i v e way d u s t r i a l progress.  be argued,  i s a quaint  and d i e f o r the sake of i n -  The d e s t r u c t i o n of a g r i c u l t u r a l l a n d i s  to be deplored on a e s t h e t i c and p r a c t i c a l grounds. T e r r i t o r i e s have responded  The  New  to the v a s t l y i n c r e a s e d urban  p o p u l a t i o n by a g r e a t e r i n t e n s i f i c a t i o n of farming and a more economic l a n d use.  Whereas almost a l l n o n - p e r i s h a b l e  foods have to be imported,  a l a r g e p r o p o r t i o n of f r e s h  such as v e g e t a b l e s and l i v e s t o c k are produced small measure of s e l f  locally.  support i n v e g e t a b l e s , pork,  foods This  and  p o u l t r y does not r e a l l y suggest t h a t Hong Kong can be i n d e pendent i n her food supply. I n recent y e a r s , more and more a r a b l e l a n d i s being used up f o r housing, With the continuous  s q u a t t e r huts, roads and expansion  reservoirs.  of i n d u s t r i e s and u r b a n i z a t i o n  i n the r u r a l areas, good a g r i c u l t u r a l l a n d has been decreasing i n area.  Under heavy p o p u l a t i o n p r e s s u r e , once l a n d  has been withdrawn from a g r i c u l t u r e i t w i l l not go back to cultivation.  Food Problem Hong Kong would, i n any circumstances, have had to import the v a s t bulk of her requirements  (see T a b l e 5 on  page 27), because of the very h i g h r a t i o of p o p u l a t i o n to  Table 5.  P r o j e c t e d aggregate Food Consumption, Production, and Import Requirement, 1970,1975 and 1980 (In 1964 P r i c e s )  Item  1962-1964  1970  1975  1980  Consumption Per  c a p i t a consumption (HK$)  476.3  592.9  666.5  739.1  P o p u l a t i o n (thousands)  3,552  4,020  4,540  5,260  T o t a l Consumption HK$)  1,691.8  2,383.5  3,025.8  3,887.8  325.3  456.7  549.2  645.2  1,366.5  1,926.8  2,476.6  3,242.6  (million  Production T o t a l domestic output ( m i l l i o n HK$) Import Requirements Consumption minus output ( m i l l i o n HK$)  Source:  The Economic Research Centre of the Chinese U n i v e r s i t y of Hong Kong, Long Term Economic and A g r i c u l t u r a l Commodity P r o j e c t i o n s f o r Hong Kong, 1970, 1975. and 1980. (Hong Kong: Chinese U n i v e r s i t y Press, 1969), p. 56.  to  -0  28 a r a b l e l a n d , and the r a t e at which urban development i s c o v e r i n g what l i t t l e  of such l a n d i s a v a i l a b l e .  booming market f o r food on the doorstep, f r e e to r i s e u n t i l  With a  and with p r i c e s  supply meets demand, there seems to be  some h i a t u s i n the working of the market i n Hong Kong. may  be t h a t the p r i c e s at which the very heavy food  from mainland China are d e l i v e r e d make c o m p e t i t i o n ble.  I f and when the communist development plans  It  imports impossi-  gather  s u f f i c i e n t momentum f o r them to be a b l e to a f f o r d to consume the meat, f r u i t and vegetables f o r g r a i n imports,  x^hich they now  i t w i l l become c l e a r how  are u n r e a l i s t i c a l l y  export to  pay  f a r these p r i c e s  low.  Another l o c a l element i n the s i t u a t i o n ,  particularly  i n the Hakka v i l l a g e s , i s the i n c r e a s e d p r o s p e r i t y of male emigrants who  have t r a d i t i o n a l l y worked away from home  l e a v i n g a g r i c u l t u r e to t h e i r women.  Many of them are  now  i n v o l v e d i n o p e r a t i n g r e s t a u r a n t s i n B r i t a i n i n s t e a d of working i n the mercant marine. remittances may  The  i n c r e a s e d s i z e of t h e i r  i n a few cases a c t as a d i s i n c e n t i v e and  l e a d to the f a i l u r e to c u l t i v a t e l a n d . shown t h a t low income food producers the t r a d i t i o n a l occupations  Recent trends have  are tending to leave  of f i s h i n g and  agriculture,  (see Table 6 on page 29) As a r e s u l t , Hong Kong's a g r i c u l t u r a l p r o d u c t i o n now  covers an even s m a l l e r p a r t of i t s  2f  Table 6.  Employment by I n d u s t r i a l Group, 1961 and 1970  196l number employed  I n d u s t r i a l Group  1970  a  per cent number of. t o t a l employed  b  per cent of t o t a l  37,581  7.3  81,300  5.2  265,323  22.3  375,440  24.1  Communication  86,740  7.3  106,660  6.8  Public  18,978  1.6  15,210  1.0  131,279  11.0  259,690  16.7  58,209  4.9  96,000  6.1  526,361  44.2  613,620  39.4  16,628  1.4  10,640  0.7  1,191,099  100.0  1,558,500  100.0  Farming and F i s h i n g Services  Utilities  Commerce Construction Manufacturing Unclassified  TOTAL  Note:  Source:  ,1961 i s based on Census. °1970 i s an estimate based on the p a t t e r n of employment r e v e a l e d i n the 1966 By-Census. 1961: 1970:  Commissioner of Census and S t a t i s t i c a l P l a n n i n g , Report of the Census, 1961, Volume I I I , Hong Kong. Hong Kong, Annual Report, 1970.  30 t o t a l food consumption and g r e a t e r imports mainland China  seems to be the o n l y  of food from  solution.  31  CHAPTER I I I NOTES  Edv/ard Hambro, The Problem of Chinese Refugees i n Hong Kong. Report submitted to the U n i t e d N a t i o n s High Commissioner f o r Refugees, (Leyden, 1955) c i t e d HambroReport, p. 18. 1  2 I b i d . , p. 18. 3 D. ¥. D r a k a k i s , et a l . , Housing P r o v i s i o n i n Metrop o l i t a n Hong Kong. (Hong Kong: Centre of A s i a n S t u d i e s — U n i v e r s i t y of Hong Kong, 1973), p. 58. 4 S. G. D a v i s , Land Use and M i n e r a l D e p o s i t s i n Hong Kong, Southern China and South-East A s i a . (Hong Kong: Hong Kong U n i v e r s i t y P r e s s , 1964), p. 26.  CHAPTER IV  HONG KONG'S TRADE WITH MAINLAND CHINA (1949-1975)  Trade H i s t o r y Before  1952  When the i s l a n d of Hong Kong was ceded t o the B r i t i s h i n 1843 by the T r e a t y of Nanking i t had a l r e a d y become, v  i n the t h r e e y e a r s a f t e r i t s o c c u p a t i o n i n 1840, of some importance  as a c e n t r e of t r a d e .  Before the embargoes were imposed i n 1951, Hong Kong's p r i n c i p a l market was China.  Hong Kong's exports t o  China n e a r l y doubled China's exports t o Hong Kong.  By 1952,  however, China's exports t o Hong Kong were w e l l above Hong Kong's exports t o China.  These changes are shown i n T a b l e 7  on page 33 which c l e a r l y i n d i c a t e t h a t w h i l e Hong Kong imports from China stayed at about  the same l e v e l , the  s i g n i f i c a n t f a c t o r i n t h i s changed balance of t r a d e was the dramatic d e c l i n e i n China's imports from Hong Kong. Embargoes were one reason f o r t h i s s t a t e of a f f a i r s , but e q u a l l y important was China's change i n p o l i c y a f t e r the Communists took c o n t r o l .  Communist China's main aim was t o  o b t a i n Hong Kong d o l l a r s i n exchange f o r Chinese goods. 32  33 Where they were a b l e t o , the Communists put p r e s s u r e upon Hong Kong's merchants t o promote China's products even b e f o r e l o c a l ones, throughout South-east A s i a , and a t the same time were r e d i r e c t i n g r e c i p r o c a l t r a d e from Hong Kong i n order t o t r a d e d i r e c t l y from Canton, Shanghai and other p o r t s of t h e i r own.  Hong Kong was then l i t t l e more than a  r e c e i v e r of China's excess a g r i c u l t u r a l  produce and manu-  f a c t u r e d goods. T a b l e 7.  Hong Kong's Trade With Mainland China, 1949-1952  E x p o r t s t o China  Imports from China  Balance Percentage of Percentage of of Trade HK $ t o t a l exports HK $ t o t a l imports HK $ M i llion from Hong KQng M i l l i o n from Hong Kong Year M i l l i o n 1949  585  25.2  593  21.5  -8  1950  1,460  39.3  860  22.7  600  1951  1,604  36.2  863  17.6  741  1952  520  18.3  830  21.9  -310  Source:  Hong Kong Government, Trade Returns. The  1952 nation-wide a n t i - c o r r u p t i o n d r i v e i n China  a l s o reduced purchases from Hong Kong and c o n t r i b u t e d to the f a v o r a b l e t r a d e balance f o r the Communist  nation.  Trade Under the F i r s t F i v e Year P l a n (1953-1957) In  1953, China began the F i r s t F i v e Year P l a n f o r  34 the  development  principles, Bloc  o f h e r economy,  China  gave  and an increased  fining  imports  first trade  and i n accordance  place with  from the Western  to trade  Southeast  with Asia,  countries  with the  i t s  Soviet  while  to certain  con-  needed  materials. After  1955, H o n g K o n g ' s  grow.  Simultaneously there  Kong's  trade  the  rate  deficit  imports from China  was a s t e a d y  Table  Exports HK $ Year M i l l i o n  to  g r o w t h o f Hong  with Mainland China—an i n d i c a t i o n of  of accumulation of foreign  Hong Kong m a r k e t .  began  (see Table  exchange  by China  i n the  8)  Hong K o n g ' s Trade W i t h M a i n l a n d C h i n a , 1953-1957  8.  to China  Imports  Percentage of t o t a l exports HK $ f r o m Hong Kong M i l l i o n  from China  B  a  i  a  n  540  19.7  857  22.1  -317  1954  391  16.2  692  20.2  -301  1955  182  7.2  898  24.1  -716  1956  136  4.2  1 ,038  22.7  -902  1957  123  4.1  1 ,131  22.0  Hong  In trade  Kong Government,  1957, H o n g K o n g ' s  surplus)  with  China  Trade  trade  increased  e  Percentage of of Trade t o t a l imports HK $ f r o m Hong Kong M i l l i o n  1953  Source:  c  -1,008  Statistics.  deficit  (or China's  to about  U . S . $200  35 m i l l i o n a year.  T h i s was due t o the d e c l i n e of Hong Kong's  exports to China, while imports steady  from China remained a t a  level. The  aggregate amount of f o r e i g n exchange earned by  China i n the Hong Kong market d u r i n g the F i r s t F i v e Year P l a n p e r i o d was about U.S. $568 m i l l i o n .  T h i s formed appro-  x i m a t e l y t h r e e - q u a r t e r s o f the t o t a l net export  surplus  r e a l i z e d by China on her t r a d e account with the non-Communist countries.  T h i s s u r p l u s o f f o r e i g n exchange c o u l d have  been used by China  e i t h e r to cover her trade d e f i c i t  with  the Communist c o u n t r i e s ( e s p e c i a l l y the S o v i e t Union) or as a fund t o f i n a n c e China's purchases from the West i n the course  of the Second F i v e Year P l a n ,  (by 1957 v i s i b l e  trade  with Hong Kong was a l r e a d y meeting a q u a r t e r to a t h i r d o f China's hard currency commitment—U.S. $177 m i l l i o n out of U.S.  $617 m i l l i o n ) 1  From Hong Kong's p o i n t o f view, t r a d e with China was an important  channel  supply o f f o o d s t u f f s and raw m a t e r i a l s ,  (see Table 9 on page 36)  Trade Under the Second F i v e Year P l a n (1958-1962) In China's Second P l a n , f o r e i g n trade was made subo r d i n a t e t o the r e a l i z a t i o n o f n a t i o n a l i n d u s t r i a l i z a t i o n plans and simultaneous  development o f i n d u s t r y and  36 T a b l e 9.  Composition of Hong Kong's Imports from China, 1953-1957 Percentage of the T o t a l  Commodity Group 1.  Foodstuffs L i v e animals, c h i e f l y f o r food  15.0  F r u i t and v e g e t a b l e s  13.9  D a i r y products, eggs and honey  5.5  Animal and v e g e t a b l e o i l ,  5.2  f a t s , greases  F i s h and f i s h p r e p a r a t i o n s  4.2  C e r e a l s and c e r e a l p r e p a r a t i o n s  3.7  Meat and meat p r e p a r a t i o n s 2.  Raw  1.9  M a t e r i a l s and Manufactured Goods  T e x t i l e y a r n , f a b r i c s , made up and r e l a t e d products  articles  Animal and v e g e t a b l e crude m a t e r i a l s , inedible Paper, paper board and  10.7 2.9  seeds, o i l nuts and o i l k e r n e l s  N o n - m e t a l l i c m i n e r a l manufactures 3*  14.3  manufactures  thereof Oil  49.4  2.8 2.3  33.0  Other Items ( b e l o n g i n g t o e i t h e r group 1 or 2 above but not s p e c i f i e d ) TOTAL  Source:  17.6 100.0  E. F. Szczepanik, ' F o r e i g n Trade o f Mainland C h i n a i n Contemporary China. V o l . I I I . 19581959. (Ohio: C h a r l e s E. M e r r i l l P u b l i s h i n g Company, 1972), pf 38. 1  •m agriculture.  Through f o r e i g n t r a d e China intended to  e l i m i n a t e the gap between the supply and demand f o r c e r t a i n raw m a t e r i a l s .  Imports of c a p i t a l goods f o r heavy i n d u s t r y  were to be reduced but more raw m a t e r i a l s and equipment f o r l i g h t i n d u s t r y were to be imported. During the " t r a d e o f f e n s i v e " of 1958, many Chinese products were s o l d i n Southeast A s i a at extremely low p r i c e s . In Hong Kong, Chinese cement and r o l l e d s t e e l were s o l d a t p r i c e s 10 per cent below the Japanese p r i c e s and p r i c e s of l i v e animals and d a i r y products were reduced by 30 per cent 2 below the 1957 l e v e l .  S e v e r a l new  department  and  provision  s t o r e s were set up i n Hong Kong and the South Sea Company was  e s t a b l i s h e d to r e - e x p o r t Chinese commodities.  Agents  for  Chinese products i n Hong Kong as w e l l as i n o t h e r coun-  t r i e s of Southeast A s i a were g i v e n s p e c i a l f a c i l i t i e s , as c r e d i t and d e f e r r e d payments.  such  As a r e s u l t , the v a l u e of  Hong Kong's imports from China i n c r e a s e d by almost 24 per cent i n comparison w i t h  1957.  To mainland China, the importance of her p o s i t i v e balance of t r a d e w i t h Hong Kong i s v e r y g r e a t . s u r p l u s , amounted to U.S.  I n 1958,  $217 m i l l i o n and covered about  per cent of China's t o t a l estimated d e f i c i t i n t r a d e w i t h Western Europe  (U.S. $270 m i l l i o n ) .  The r e s t c o u l d have  been p a i d e a s i l y from the f o r e i g n exchange earned i n the  this 80  38 Hong Kong market under the F i r s t F i v e Year P l a n .  Thus,  C h i n a s need to balance i n t e r n a t i o n a l payments does seem to 1  make Hong Kong a p a r t n e r o f great importance f o r the Communist  nation. In 1959,  the " t r a d e o f f e n s i v e " came to an abrupt end  due most p r o b a b l y to the shortage o f e x p o r t a b l e commodities. The main d e c l i n e was base metals.  i n such items as t e x t i l e products and  Thus Chinese exports to Hong Kong were about  25 per cent below the 1958  level.  During the e a r l y 60's, when China had s u f f e r e d from natural d i s a s t e r s f o r several years i n succession, t h i s r e s u l t e d i n the Hong Kong Chinese sending food p a r c e l s to t h e i r r e l a t i v e s and f r i e n d s i n Mainland China.  Consequently,  Communist China b e n e f i t e d by r e c e i v i n g f o r e i g n exchange and through the c o l l e c t i o n of import  duties.  The c o l l a p s e of the Great Leap Forward i n 1960 i n creased the importance i n the P.R.C.'s eyes of the q u e s t i o n of overseas Chinese r e m i t t a n c e s , I n 1961  i t began t o encourage  (see T a b l e 10 on page  39)  overseas Chinese t o send food  p a r c e l s to r e l a t i v e s on the mainland, and Chinese with r e l a t i v e s overseas wrote t o them to the same e f f e c t . c e l s were guaranteed prompt d e l i v e r y , and i t was  Gift  par-  promised  that an e q u i v a l e n t amount of food would not be deducted the r e c i p i e n t s ' r e g u l a r r a t i o n s .  I n 1962,  from  when the food  s i t u a t i o n began to improve, the Chinese government  encouraged  ,39. Table 10.  Overseas Chinese Remittances, 1950-1967.  ( i n U.S. 1 i> m i l l i o n )  Year  FamilyRemittances  Investment Remittances a  Total  1950  91.1  • * •  91.1  1951  101.7  • • •  101.7  1952  103.3  • • •  103.3  1953  76.0  1.3  77.3  1954  69.2  0.5  69.7  1955  64.1  6.7  70.8  1956  54.8  8.4  63.2  1957  38.3  11.4  49.7  1958  36.0  6.7  42.7  1959  26.2  6.4  32.6  1960  33.5 a  ...  33.5  • * •  (30.0)  1962  • ••  (30.0)  1963  • • •  (40.0)  1964  • • •  (50.0)  1965  • • •  (67.0)  1966  • • •  (60.0)  1967  • • •  1961  Note:  ...  b  (30.0)  foNot a v a i l a b l e Estimates  Source:  Feng-hwa Mah, The F o r e i g n Trade of Mainland China. (Chicago: A l d i n e and A t h e r t o n I n c . , 1971), p/ 173.  remittances i n the form of funds, which c o u l d be used f o r e x t r a food, r a t h e r than food p a r c e l s . Table 11.  :  11)  China's R e c e i p t s from Food P a r c e l s , 1959-1964 ( i n U.S.  Taxes on Food P a r c e l s  Year  (see Table  $million) Food Remittances  Total Receipts  S1959  1.1  -  1.1  1960  4.6  4.6  9.2  1961  16.4  16.4  32.8  1962  16.7  16.7  33.4  1963  11.0  11.0  22.0  1964  7.1  7.1  14.2  Source:  Feng-hwa Mah, The F o r e i g n Trade of Mainland China. (Chicago: A l d i n e and A t h e r t o n Inc., 1971), p. 176.  In  d e a l i n g w i t h the p e r i o d of bad h a r v e s t s , China  looked f o r the purchase In  of g r a i n from Canada and A u s t r a l i a .  s e t t l i n g the f u t u r e payment of t h i s unexpected  debt,  the  f o r e i g n exchange gained from Hong Kong's t r a d e c o n t r i b u t e d the most probable monetary r e s o u r c e ,  (see Table 12 on page  44) From Hong Kong's standpoint, i t appeared 1960  that i n  about 63 per cent of l i v e animals, 57 per cent of f i s h  and 50 per cent of meat were imported  from China.  Kong's dependence on other food imports from China  Hong was  T a b l e 12.  Hong Kong's Trade With Mainland China, 1958-1962  Hong Kong's Exports ( m i l l i o n $)  Year  Hong Kongjs Imports ( m i l l i o n $)  1958  244.5  27.3  1959  181.0  1960  Gross Trade Balance ( m i l l i o n $)  Net Trade Balance as % o f Balance  Gross Trade Balance as % o f Chinese D e f i c i t with Western Countries  (50  (%)  -217.2  73  73.1  20.0  -161.0  91  81.0  207.5  21.0  -186.5  92  139.4  1961  180.0  17.3  -162.7  93  89.2  1962  212.3  14.9  -197.4  92  87.4  Source :  Claude E. F o r g e t , China's E x t e r n a l Trade: A Canadian P e r s p e c t i v e . (Montreal: P r i v a t e P l a n n i n g A s s o c i a t i o n o f Canada, 1971), p. 45.  42 s m a l l e r but q u i t e s i g n i f i c a n t , about 46 per cent of f r u i t and v e g e t a b l e s , 35 per cent of d a i r y products and t e a , 28 per cent of animal and v e g e t a b l e o i l s and almost 20 per cent of c e r e a l s imported i n t o Hong Kong came from China, (see T a b l e 13 on page 43)  Trade R e l a t i o n s h i p from 1963-1966 The S i n o - S o v i e t s p l i t f o r c e d China to t u r n more t o the West f o r t r a d e .  S i n c e China i n c u r r e d huge debts from  the g r a i n purchases, she had to i n c r e a s e her export earnings. In A p r i l  1963 a Chinese V i c e - M i n i s t e r f o r F o r e i g n  Trade, Lu Hsu-Chang, v i s i t e d B r i t a i n , S w i t z e r l a n d , and the Netherlands, came to Hong Kong, and h e l d u n o f f i c i a l  con-  s u l t a t i o n s with the Hong Kong government's Commerce and I n d u s t r y Department.  He met with r e p r e s e n t a t i v e s from the  trade and banking world. began t o grow r a p i d l y .  Communist b u s i n e s s i n Hong Kong By the end 6S6 1964 t h e r e were t e n  s p e c i f i c a l l y communist shops i n the Colony, more than twice the number i n 1962.  By the end of 1965 the number  through-  4 out the Colony had r i s e n t o 34.  In 1967 a huge new  em-  porium on a key s i t e opened t o e x p l o i t t o the f u l l Hong Kong's booming t o u r i s t  industry.  S t a r t i n g from 1964, t h e r e was an i n c r e a s e i n exports  43 Table 13.  Composition of Hong Kong's From China, 1960  Imports  (Percentages of the t o t a l ) Share of Imports From Share i n China i n T o t a l T o t a l Imports H.K. Imports From China  Commodity Group Food-stuff s L i v e animals, c h i e f l y f o r food F r u i t s and v e g e t a b l e s F i s h and f i s h p r e p a r a t i o n s C e r e a l s and c e r e a l p r e parations D a i r y p r o d u c t s , eggs and honey Meat and meat p r e p a r a t i o n s C o f f e e , t e a , cocoa, s p i c e s Animal and v e g e t a b l e o i l s  Raw m a t e r i a l s and manuf a c t u r e d goods T e x t i l e yarns, f a b r i c s , made up a r t i c l e s and r e l a t e d products Animal and v e g e t a b l e crude materials N o n - m e t a l l i c m i n e r a l manufactures Paper, paper board and manufactures thereof M i s c e l l a n e o u s manufactured articles Clothing Mineral fuels, lubricants and r e l a t e d m a t e r i a l s O i l seeds, o i l nuts and o i l kernels Base metals  62.9 45.8 56.9  13.6 10.3 5.5  19.7  5.5  34.7 50.0 35.3 28.3  3.9 3.6 1.7 1.7 45.8  26.1  23.4  54.7  7.1  41.9  3.9  24.4  2.9  18.0 31.7  2.2 1.9  7.0  1.2  33.3 3.6  1.0 0.9 44.5 9.7 100.0  Other items TOTAL Source:  Hong Kong Government, Trade  Statistics.  44 to Hong Kong p o s s i b l y due to China's economic r e c o v e r y and improved h a r v e s t . exchange was  But t h e r e i s no doubt t h a t more f o r e i g n  a necessity.  China d i d continue the imports of  cheap g r a i n from abroad while e x p o r t i n g expensive r i c e  under  a d e l i b e r a t e economic p o l i c y . Due t o the s u b s t a n t i a l debts from the g r a i n purchases, China had t o i n c r e a s e her export earnings by making e x t r a e f f o r t s t o maximize her trade with Hong Kong.  For  i n s t a n c e , China operated the s p e c i a l " l i v e and f r e s h "  train  s e r v i c e from Wuhan ( c e n t e r o f China) d i r e c t l y to Canton which r e s u l t e d i n a r e d u c t i o n o f the u s u a l t r a n s p o r t a t i o n time from e i g h t days t o f i f t y - t w o hours.^  A l s o t h e r e was  the  b u i l d i n g of a c o l d storage p l a n t at Shun Chun (on the border between Mainland China and the Colony of Hong Kong) f o r keeping v e g e t a b l e s and f r u i t f r e s h e r f o r a l o n g e r p e r i o d of time.  These moves are a c l e a r i n d i c a t i o n of China's d e t e r -  m i n a t i o n to expand her t r a d e w i t h Hong Kong and at the same time c o n t r o l t h i s t r a d e by w i t h h o l d i n g goods u n t i l the most s u i t a b l e time f o r her o\ra b e s t i n t e r e s t s . In 1965,  China's debts t o the S o v i e t Union were  f i n a l l y c l e a r e d and Hong Kong became the s i n g l e most tant market f o r Chinese goods. alone, Hong Kong was  In 1966,  impor-  i n the t r a d e s e c t o r  s t i l l a c c o u n t i n g f o r n e a r l y a t h i r d of  China's t o t a l hard-currency commitments, i . e . U.S.  $473  45 m i l l i o n out o f U.S. $1,530 m i l l i o n . T a b l e 14.  6  (see T a b l e 14)  Hong Kong's Trade With Mainland China, 1963-1966  Gross Trade Balance as % of Net Trade Chinese Balance D e f i c i t w i t h Gross as % of Western Trade Hong Kong's Hong Kong's Balance C o u n t r i e s Balance Exports Imports ( m i l l i o n $) ( m i l l i o n $) (*) Year ( m i l l i o n $) (%) 1963  260.2  12.3  -247.9  88  107.2  1964  344.8  10.4  -334.4  n.a.  144.6  1965  406.3  12.5  -393.8  n.a.  154.6  1966  484.6  12.1  -472.5  n.a.  140.8  Source:  Claude E. F o r g e t , China's E x t e r n a l Trade: A Canadian P e r s p e c t i v e . ( M o n t r e a l : P r i v a t e Planning A s s o c i a t i o n of Canada, 1971), p. 45.  Recent Trade Development from 1967-1975 I n t e r n a l t r o u b l e s i n China o f t e n d i s r u p t e d p r o d u c t i o n and d i s t r i b u t i o n and f i n a l l y r e s u l t e d i n a s e r i o u s d e c l i n e i n her exports t o Hong Kong.  Examples of such d i s r u p t i o n s were  the nation-wide " a n t i - c o r r u p t i o n d r i v e " i n 1952, and the f a i l u r e o f the "Great Leap Forward"  i n 1958.  A f t e r each cam-  paign was over, China exported more goods t o the Colony and s t e a d i l y i n c r e a s e d the t r a d e volume t o compensate f o r f o r e i g n exchange l o s t i n the c h a o t i c y e a r . As a r e s u l t of the C u l t u r a l R e v o l u t i o n i n 1967, t h e r e was a b o y c o t t of goods t o the "Hong Kong B r i t i s h  Imperialists".  46 The  d e c l i n e of exports to Hong Kong r e s u l t e d i n a decrease  i n the supply of f o r e i g n exchange to China.  Thus i n  1967  China f a i l e d to balance her world t r a d e and showed a t r a d e d e f i c i t of U.S.  $30 m i l l i o n .  Lost earnings i n the t r a d e  with Hong Kong were p a r t l y r e s p o n s i b l e . Hong Kong's r o l e as a major s u p p l i e r of f o r e i g n change was  ex-  a g a i n proved by the C u l t u r a l R e v o l u t i o n d i s t u r -  bances and the s i g n i f i c a n c e of her r o l e was  f u r t h e r shown by  the f a c t t h a t China t r i e d to r e d i r e c t her t r a d e to Singapore i n 1967, first  but without much success.  The Peking  authorities  b e l i e v e d t h a t the e x i s t e n c e of a Chinese community i n  Singapore might b r i n g about a demand f o r Chinese goods. U n f o r t u n a t e l y f o r China, the Singapore government d i d not a l l o w an i n v a s i o n o f her domestic market by imported goods.  The reason was  simply because  ment d i d not want t r a d e t h a t was was  the Singapore  Chinese govern-  widely out of balance and  extremely u n f a v o r a b l e to her balance of payment As a r e s u l t of the u n s u c c e s s f u l attempt  situation.  on the  Singapore market, the Chinese government then d i v e r t e d i t s a t t e n t i o n to the s t r e n g t h e n i n g o f her marketing  system  and  the c o n t r o l l i n g of p r i c e s i n her export t r a d e w i t h Hong Kong. China knows that Hong Kong has no a l t e r n a t e s u p p l i e r which i s capable of p r o v i d i n g Hong Kong w i t h the huge amounts of Chinese f o o d s t u f f s that she needs. g r a p h i c a l advantage  China a l s o has a geo-  i n c o m p e t i t i o n f o r s e l l i n g i n the Hong  47 Kong market.  Communist China c o n t r o l l e d the Hong Kong food  market through the f o l l o w i n g means: (1)  Ng Fung Hong (the sole agent) determines  the q u a l i t y  and k i n d of goods i t imports and s u p e r v i s e s the food marketing (2)  channels i n Hong Kong.  P r a c t i s i n g a p r i c i n g s t r a t e g y to defeat the farmers and independent  (3)  local  food i m p o r t e r s .  Using a dumping s t r a t e g y to i n t e r f e r e with or prevent i m p o r t a t i o n from other c o u n t r i e s .  (4)  I n order to earn more money from exports which had a p r i c e i n e l a s t i c demand China no l o n g e r undercut  prices  f o r such products i n Hong Kong (see T a b l e 15).  Thus  she c o u l d make more money while s e l l i n g l e s s goods. T a b l e 15.  General Consumer P r i c e Index i n Hong Kong, 1964, and 1970-1973  (1964 =  100)  Year  Food  A l l Items  1964  100.0  100.0  1970  145.0  126.5  1971  150.3  130.8  1972  161.0  139.8  1973  200.1  164.0  Source:  Hong Kong Government: 1964, and 1970-1973.  Hong Kong Annual  Report  48 China's t r a d e with Hong Kong rose s h a r p l y a f t e r 1968,  the amount of f o r e i g n exchange she earned from the  Hong Kong market was more than enough to cover the cost of imported g r a i n ,  (see Table 16)  Once a g a i n i t was  clear  that Hong Kong needs a food s u p p l i e r and China needs a potent i a l consumer market which binds these two t r a d e p a r t n e r s t i g h t l y together. Table 16.  Grains Imported from Canada and A u s t r a l i a , compared with money earned from Hong Kong, 1958-1970 ( i n m i l l i o n s of U.S. Wheat Imported From  Year  Canada  Australia  dollars) Money Earned From Hong Kong  1958  7  27  245  1959  2  30  181  1960  9  24  208  1961  1121  162  180  1962  137  97  212  1963  97  202  260  1964  126  153  345  1965  98  168  406  1966  171  83  485  1967  84  195  397  1968  151  89  401  1969  114  117  446  1970  136  147  467  1,253  1,494  4,233  TAX Source:  A r t h u r A. Stahnke, China's Trade With The West. (New York: Praeger P u b l i s h e r s , 1972), p. 179.  49 The  importance  of the trade r e l a t i o n s  between Hong  Kong and China as w e l l as Hong Kong's huge payment o b l i g a t i o n to China can best be e x p l a i n e d by the 1967 pound s t e r l i n g d e v a l u a t i o n case. related  The Hong Kong d o l l a r i s d i r e c t l y  t o the S t e r l i n g B l o c , and the Colony had maintained  more than £350  m i l l i o n r e s e r v e s i n the Bank of England.  Hong Kong government at f i r s t  The  decided t o devalue the Hong  Kong d o l l a r a t the same r a t e as the pound s t e r l i n g , but l a t e r i t was decided t h a t the Hong Kong d o l l a r  should be r e -  7 v a l u e d by 10 per cent.  T h i s came about as a r e s u l t of i t s  great need to pay f o r import of Chinese goods. By the same token, the 1972 U.S. d o l l a r d e v a l u a t i o n case f u r t h e r r e f l e c t e d to China.  the payment o b l i g a t i o n of Hong Kong  When the U n i t e d S t a t e s devalued i t s c u r r e n c y  twice i n 1972, the Hong Kong government d i d not f o l l o w s u i t although the U.S. market accounted of Hong Kong's t o t a l e x p o r t s .  f o r more than 45 per cent  S i n c e Hong Kong's major com-  p e t i t o r s , Taiwan and South Korea both devalued t h e i r c u r r e n c i e s at the same r a t e as d i d the U.S., Hong Kong r a n the r i s k of l o s i n g her competitiveness i n s e l l i n g t o the U.S. market.  YBt, the Hong Kong government c o u l d not devalue the  Hong Kong d o l l a r because i t would mean paying more money to buy the same amount of goods from Communist China once dev a l u a t i o n had taken p l a c e .  50 Mainland China was almost  c e r t a i n not t o devalue  a g a i n s t the Hong Kong d o l l a r i n substance, i f not i n f o r m a l monetary a c t i o n .  The importance  o f Hong Kong as a source o f  China's f o r e i g n exchange earnings t o her i s w e l l known.  As  a s u p p l i e r o f f o o d s t u f f s and other n e c e s s i t i e s whose consumption  i s not apt t o d e c l i n e much under h i g h e r p r i c e s , i t  i s to China's advantage to exact i n c r e a s e d p r i c e s ( i n Hong Kong d o l l a r s ) f o r i t s e x p o r t s . At the moment Hong Kong i s China's l a r g e s t and most p r o f i t a b l e export market.  I n 1973, China's net f o r e i g n ex-  change on s a l e s t o Hong Kong was about U.S. $1,000 m i l l i o n . The Hong Kong d o l l a r s earned a r e exchanged f o r i n t e r n a t i o n a l c u r r e n c i e s , p r i m a r i l y i n Hong Kong t o meet other c u r r e n c y requirements, or h e l d i n account by the Bank o f China. I t has been China's p o l i c y to r e f u s e l o a n s and t o a v o i d t a k i n g l o n g p o s i t i o n s i n f o r e i g n c u r r e n c i e s i n the f a c e of u n s t a b l e markets.  Exports a r e s o l d and imports are  bought with cash, though t h e r e i s now a t r e n d t o pay f o r l a r g e purchases  (U.S. $10 m i l l i o n and above) under f i v e year  or l o n g e r i n s t a l m e n t p l a n s .  As a r e s u l t o f these  Hong Kong has p l a y e d a r o l e i n f i n a n c i n g China's  policies, exports.  In 1974, China s o l d goods worth U.S. $1,198 m i l l i o n to the B r i t i s h colony w h i l e exports and r e - e x p o r t s i n the other d i r e c t i o n t o t a l l e d $59 m i l l i o n .  V i s i b l e t r a d e from  51 Hong Kong alone p r o v i d e d China w i t h a net $1,139 m i l l i o n or g about 18 per cent o f the t o t a l i t earned  worldwide.  To sum up the 26 years t r a d i n g h i s t o r y between Hong Kong and China, Hong Kong, as a t r a d i n g p a r t n e r t o China, i s unique i n two ways:  F i r s t , the t e r r i t o r y p r o v i d e s an e s t i -  mated 40 per cent o f China's f o r e i g n exchange earnings  every  y e a r ; and secondly, no other market c o u l d s u b s t i t u t e f o r Hong Kong.  52  CHAPTER IV NOTES  Arthur A. Stahnke, China's Trade With The West. (New York: Praeger P u b l i s h e r s , 1972), p. 189. 1  Paper.  2 Hong Kong Economic A s s o c i a t i o n , Hong Kong Economic (Hong Kong, 1960-1970), p. 69.  »The C China Market, 1962," Current Scene. J u l y 1, 1963, pp. 9-10. 3 3  4.  South China Morning Post, Hong Kong, December 7,  1965. rill  ^Yung Wei, Communist China, (Ohio: P u b l i s h i n g Company, 1972), p. 85.  C h a r l e s E . Mer-  Alexander E c k s t e i n , Communist China's Economic Growth and F o r e i g n Trade. (New York: Praeger P u b l i s h e r s , 1972), p. 93. 7 Wah K i u Yat Po. Hong Kong, October 27, 1967. 8 China Trade Report. Hong Kong, November 1975. v  CHAPTER V  CONCLUDING REMARKS  For the past twenty-six y e a r s , the t r a d e between Hong Kong and Mainland  China has been c o n t i n u i n g d e s p i t e  many p o l i t i c a l upheavals l i k e the l e a n - t o - o n e - s i d e ' 1  of  C h i n a s f o r e i g n p o l i c y with the S o v i e t Union, the American 1  embargo, the C u l t u r a l R e v o l u t i o n and the l o c a l d i s t u r b a n c e s i n Hong Kong,  communists  (see F i g u r e 4 on page 54) These  d i s t u r b a n c e s o n l y succeeded i n slowing down but d i d not tirely  stop the trade between China and Hong Kong.  because such a trade p r o v i d e s China w i t h a v a l u a b l e of f o r e i g n exchange she needs.  en-  This i s source  At the same time, Hong Kong's  need f o r China's f o o d s t u f f s grew as her p o p u l a t i o n i n c r e a s e d . These mutual needs o n l y made the t r a d e r e l a t i o n s h i p between these two  t r a d i n g p a r t n e r s c l o s e r d u r i n g the past y e a r s .  In recent y e a r s , China has the West.  I n e a r l y 1972,  a new  continued  to t r a d e  phase developed  with  when the  U.S.  government r e l a x e d i t s p o l i c y of an embargo on trade to China.  Consequently, China began to p l a c e l a r g e orders to  buy aeroplanes,  i n d u s t r i a l equipment and whole p l a n t s from 53  54 F i g u r e 4.  Hong Kong Trade ¥ith China, 1950-1973 ( i n m i l l i o n of U.S. $)  TRADE VOLUMI i n U.S. * $ 700  H  600  H  500 J  400 -J  300 J Imported from China Exported to China  200  A  100  A  T—1  1950  T  55  «  60  -i-M™t+~r-~+T-4 POLITICAL) SITUATION IN CHINA  Source:  1  •  •  —B  |  65  l-r-H  70  *—i—i—i  75  h-+1— Economic  RecoveryC u l t u r a l Revolution Economic Recovery Agricultural Crisis Great Leap Forward — A n t i - C o r r u p t i o n Campaign ^Embargo Economic R e h a b i l i t a t i o n  Census & S t a t i s t i c s Department, Hong Kong Government "Hong Kong S t a t i s t i c s 1947-1967", Hong Kone Annual Reports. 1968-1973.  the U n i t e d S t a t e s . k i n d of new  T h i s r a i s e s the q u e s t i o n of whether t h i s  Sino-American  a c t i o n would a f f e c t the f u t u r e  trade r e l a t i o n s h i p between China and Hong Kong. seems to be "NO".  The answer  The f o l l o w i n g a n a l y s i s and f a c t s may  help  to e x p l a i n the above answer: (1)  Trade between Hong Kong and China c o n s i s t s mainly of goods exported from China to Hong Kong, 0.3  ( o n l y about  per cent of Hong Kong's exports of goods go to  China)  But China's t r a d e with the West c o n s i s t s mainly  of buying or importing of durable goods and However, China's and  grain.  exports to the Colony are f o o d s t u f f s  some commodity goods.  (Hong Kong i s completely  dependent on China f o r 79 per cent of i t s l i v e  animals,  56 per cent of i t s meat and more than 60 per cent of i t s r i c e every year)  Chinese  exports to the non-Communist  world c o n s i s t l a r g e l y of raw and processed  agricultural  p r o d u c t s , the main c a t e g o r i e s being f r e s h meat, f r e s h f i s h , rice, fresh f r u i t ,  f r e s h v e g e t a b l e s , o i l seeds,  t e x t i l e yarn and thread, and c o t t o n f a b r i c s .  None of  these commodities (except t e x t i l e s ) suggests trade of much p o t e n t i a l i n t e r e s t to American i m p o r t e r s . (2)  The  1  trade r e l a t i o n s h i p between Hong Kong and China  been e s t a b l i s h e d f o r t w e n t y - s i x y e a r s .  has  The maintenance  of the l o n g - s t a n d i n g and f i r m r e l a t i o n s h i p w i t h the  56 Colony appears to be h i g h l y valued by Communist China. There are some important p o i n t s about Hong Kong's China t r a d e . favour.  F i r s t l y , i t i s overwhelmingly  Secondly, Hong Kong cannot  self-sufficient.  i n China's  switch or become  I t s main imports from China are food  l i n e s at p r i c e s that cannot p o s s i b l y be matched  else-  2 where.  The Chinese government has a unique t r a d e  system i n the Colony and can c o n t r o l the l o c a l market, (see F i g u r e 5 on page 57)  T h e r e f o r e , China has  no  immediate i n t e n t i o n of l o s i n g t h i s v a l u a b l e market to r i s k d e a l i n g with other u n c e r t a i n markets, U.S.  such as the  market.  Only China can p r o v i d e the l a r g e q u a n t i t i e s of t r a d i t i o n a l Chinese-type of goods which the Hong Kong market r e a d i l y accepts.  Moreover, no other country c o u l d pro-  v i d e the same k i n d of goods a t such a huge volume to the Colony on a d a i l y b a s i s .  As the Chairman of J a r -  dine Matheson, David Newbigging s a i d " I t seems worth p o i n t i n g out that f o o d s t u f f s comprised the major p a r t , with l i v e animals alone worth $200 m i l l i o n , c e r e a l s  and  f r u i t and vegetables both worth $100 m i l l i o n and so on. Other important items are t e x t i l e yarns and worth $135 m i l l i o n , cement, c l o t h i n g , paper,  fabrics s t e e l rods  and bars and m i s c e l l a n e o u s items i n c l u d i n g f u e l o i l and  57 Figure  5.  China's Trade O r g a n i z a t i o n i n Hong Kong  S t a t e Operated F o r e i g n T r a d i n g C o r p o r a t i o n i n China  Head O f f i c e Bank of China Peking  China Resource Co. of Hong Kong A s o l e buying and s e l l i n g agent of S t a t e F o r e i g n T r a d i n g Corp.  I Dept. of] Dept. of General Animal Merchanby Products! d i s e  Dept. of Textiles  Dept. of] Cereal Oil I  Dept. of Industriall Product & I Mineral  Bank of China Hong Kong Branch financing a l l transactions Ng Fung Hong An agent f o r h a n d l i g a l l food products & operated the wholes a l e market L o c a l Communists a f f i l i a t e d banks i n Hong Kong Retailers  Source:  Y i n g , H s i n : The F o r e i g n Trade of Communist China. Hong Kong: The Union Research I n s t i t u t e , 1954.  58 d r i n k i n g water.  Most of these would be d i f f i c u l t , i f  not i m p o s s i b l e , to market elsewhere than i n Hong Kong." (4)  Robert Denberger  3  (an economist from the U n i v e r s i t y o f  Michigan) made a s e r i e s of p r o j e c t i o n s concerning the U.S.-China t r a d e volume f o r 1980 based on v a r i o u s assumptions  r e g a r d i n g the Chinese economy, Chinese trade  p o l i c i e s , and p o l i t i c a l r e l a t i o n s h i p s . covered a spectrum of p o s s i b i l i t i e s ,  The  study which  concluded t h a t as  f a r as t r a d e volume i s concerned, China's exports t o the U.S.  w i l l be n e g l i g i b l e as compared w i t h those o f  Hong Kong.  In the y e a r 1973,  to the Colony amounted to U.S. 1969 t o 1973,  China's exported goods $730 m i l l i o n , and from  the r a t e o f t r a d e between Hong Kong and  China grew at an average of 17 per cent a y e a r . t h i s r a t e by 1980,  the t r a d e volume between Hong Kong  and China would be more than U.S. that with the U.S.  At  $2,200 m i l l i o n , but  would be o n l y U.S.  under an o p t i m i s t i c estimate,  $250 m i l l i o n  (see T a b l e 17 on page  59) Denberger's  c o n c l u s i o n was  t h e r e f o r e that the t r a d e  r e l a t i o n s h i p between Hong Kong and China would not change i n the f o r e s e e a b l e f u t u r e , even though China began to t r a d e with the U n i t e d S t a t e s ,  (see T a b l e 18 on page  59)  As the China Trade Report commented, Hong Kong i s  59  Table 17.  P o t e n t i a l Balance of D i r e c t Merchandise Trade Between The U n i t e d S t a t e s and China i n 1980 (in $ million) Imports from Exports to China i n 1980 China i n 1980  "Most p e s s i m i s t i c " estimate  0  0  estimate (exports = imports)  25  25  "Least p e s s i m i s t i c " estimate  200  325  "Optimistic"  250  650  "Relatively  Source:  pessimistic"  estimate  These estimates were made by Robert F. DeMfrerger^, "Prospects f o r Trade Between China and the U n i t e d S t a t e s , i n Alexander E c k s t e i n , ed., China Trade Prospects and U.S. China P o l i c y . (New York: Praeger P u b l i s h e r s , 1971), p. 258.  Table 18.  U.S.-China Trade, 1971-1975 (in $ million)  U.S. exports 1971  -  U.S. imports  Total  Trade  4.9  4.9  1972  63.5  32.4  95.9  1973  739.7  63.9  803.6  1974  820.5  114.7  935.2  1975  250.0  150.0  400.0  Source:  China Trade Report. Hong Kong, December 1975.  60  l i k e l y to m a i n t a i n i t s p o s i t i o n as the most important way  gate-  c i t y to a growing China t r a d e d e s p i t e the f a c t t h a t  Peking i s opening  i t s door to more and more f o r e i g n b u s i n e s s -  4 men. The Hong Kong-China r e l a t i o n s h i p i s a f i n e of c o e x i s t e n c e f o r economic reasons. and the most extreme l e f t i s t  A Colonial  n a t i o n now  example  territory  e x i s t s i d e by s i d e  and have done so f o r many years i n r e l a t i v e harmony. wonders how  One  l o n g the p r e c a r i o u s s t a t e of e x i s t e n c e would  l a s t i f the Chinese  government maintained  t h a t Hong Kong  must r e v e r t to China a t a time when i t s u i t s China But t h i s does not s u i t them now  because China  Hong Kong u s e f u l as an important T h e r e f o r e , the Chinese  best.  still  finds  source of f o r e i g n exchange.  government i s happy a t present to l e t  Hong Kong remain as a colony.  However, Huang Hua,  Permanent  R e p r e s e n t a t i v e of the People's R e p u b l i c of China to the U n i t e d Nations  (of now  head of m i n i s t r y of f o r e i g n a f f a i r )  made the f o l l o w i n g comment with regard to China's  position  on Hong Kong, "With regard to the questions of Hong Kong, the Chinese  government has c o n s i s t e n t l y h e l d t h a t they  be s e t t l e d i n an a p p r o p r i a t e way  should  when c o n d i t i o n s are ripe."*'  The f u t u r e of Hong Kong depends i n v e r y great measure upon the f u t u r e development of China and i t s r o l e i n the i n t e r n a t i o n a l p o l i t i c a l and  economic system.  China's  61 p o l i c y toward Hong Kong would very l i k e l y be  determined  l a r g e l y by c o n s i d e r a t i o n s of r a t i o n a l i n t e r e s t — t h a t  i s , of  the net balance of c o s t s and b e n e f i t s i n economic and t i c a l terms.  poli-  In present circumstances, China o b t a i n s be-  tween a t h i r d and a h a l f of i t s f o r e i g n exchange earnings by s e l l i n g a g r i c u l t u r a l products, i n d u s t r i a l raw m a t e r i a l s , lowp r i c e d c l o t h i n g and other consumer goods, and Chinese commodities to Hong Kong. export i t s own  traditional  In t u r n , because i t can  products to the r e s t of the world.  foreign-exchange  earnings from Hong Kong p r o v i d e i t with the  means f o r importing the machinery, equipment and e s s e n t i a l f o r i t s own The  China's  technology  development.  chances seem q u i t e good t h a t , i n the s h o r t e r  t e r m — t h e next 5 or 10 y e a r s — H o n g Kong's p o l i t i c a l l s t a t u s w i l l remain unchanged under the above assumptions. continued investment  And,  i n Hong Kong by i t s i n h a b i t a n t s and  f o r e i g n e r s c e r t a i n l y v a l i d a t e s t h i s judgment.  the by  As Jimmy  McGregor, D i r e c t o r of the Hong Kong General Chamber of Commerce s a i d r e c e n t l y , "While  the business community c o u l d  c l e a r l y see t h a t c o n d i t i o n s f o r investment would remain a t t r a c t i v e f o r the next He p o i n t e d out t h a t Dow  Chemical  i n Hong Kong  10 to 15 years  P a c i f i c had made a l o n g -  term commitment when i t decided to b u i l d i t s p o l y s t y r e n e f a c t o r y on T s i n g Y i I s l a n d .  'I'm  sure they've  taken  this  now  into their calculations.'" f i c Bob Lundeen who  was  the q u e s t i o n of the New  P r e s i d e n t of Dow  Chemical  Paci-  a l s o on the p a n e l , confirmed t h a t T e r r i t o r i e s l e a s e d had loomed l a r g e  i n h i s board's d i s c u s s i o n of the proposed  polystyrene plant.  But he s a i d the r i s k s had to be c o n s i d e r e d i n r e l a t i v e terms. Compared to many other c o u n t r i e s Hong Kong o f f e r e d  relatively  7  good p o l i t i c a l  risks.  F o r the l o n g e r t e r m — f r o m the mid political  1980s o n — t h e  outlook becomes i n c r e a s i n g l y u n c e r t a i n s i n c e i t  depends upon developments i n China and i n the world c a l and  economic system t h a t cannot be f o r e c a s t so f a r i n t o  the f u t u r e with a h i g h p r o b a b i l i t y of accuracy. the time  politi-  The  longer  span of any such p r o j e c t i o n , the g r e a t e r the pro-  b a b i l i t y t h a t u n f o r e s e e a b l e events w i l l  substantially  affect  the nature of the outcome. Hong Kong's present s i g n i f i c a n c e f o r China i s as a source of f o r e i g n exchange, a r i s i n g both from the huge t r a d e d e f i c i t and from the remittances of Overseas Chinese. are l e s s t a n g i b l e advantages,  too, f o r a country as  as China i n having an ear on the o u t s i d e world.  There  isolated  6 3  CHAPTER V NOTES  Lawrence C. McQuade, "The F u t u r e of Sino-American R e l a t i o n s , " i n Trade With China, (AMA Research Report, 1972), p. 4 1 . 2 China Trade Report, Hong Kong, May  1975.  3 China Trade Report, Hong Kong, December  1975.  Ibid. ^Hong Kong Research P r o j e c t , Hong Kong: A Case to Answer. (United Kingdom: R u s s e l l P r e s s , 1974), p. 49. 4  Paper.  Hong Kong Economic A s s o c i a t i o n , Hong Kong (Hong Kong, 1960-1970), p. 135. 7 China Trade Report, Hong Kong, June  1976.  Economic  CHAPTER VI  A MULTIPLE REGRESSION ANALYSIS OF CHINA'S EXPORT TO HONG KONG  Objectives The o b j e c t i v e s o f the f i n a l p a r t of t h i s study were as f o l l o w s : (1)  To examine d i f f e r e n t f a c t o r s and e v a l u a t e t h e i r  signi-  f i c a n c e i n determining China's exports t o Hong Kong. (2)  To e x p l a i n the phenomenon t h a t China's c a p a c i t y t o imp o r t i s i n f l u e n c e d by her p o t e n t i a l to export t o Hong Kong.  (3)  To attempt t o formulate a r e g r e s s i o n  equation which  c o u l d be used as a p r e d i c t i v e model f o r China's exports to Hong Kong i n the near f u t u r e .  R a t i o n a l e i n S e l e c t i n g V a r i a b l e s f o r P r e d i c t i o n and Corr e c t i n g Time S e r i e s The primary i n t e r e s t i s not i n h y p o t h e s i s t e s t i n g , or i n a s s e s s i n g  the r e l a t i v e importance o f independent  vari-  a b l e s , but r a t h e r i n making as good a p r e d i c t i o n as p o s s i b l e on the b a s i s of s e v e r a l p r e d i c t o r v a r i a b l e s (which have been 64  6S involved  i n the p r e v i o u s d i s c u s s i o n ) .  Under these circum-  stances, e f f o r t s were d i r e c t e d towards o b t a i n i n g squared m u l t i p l e  c o r r e l a t i o n as p o s s i b l e .  as h i g h a  Because many o f  the v a r i a b l e s i n the data s e t a r e i n t e r c o r r e l a t e d , i t i s p o s s i b l e to s e l e c t from a p o o l of v a r i a b l e s a smaller s e t , 2  which w i l l y i e l d an R o b t a i n e d by u s i n g  almost equal i n magnitute to the one  the t o t a l  set.  The i d e a of time s e r i e s  c o r r e l a t i o n i s to c o r r e l a t e a b s o l u t e f i r s t  d i f f e r e n c e s (the  amounts o f change a r e obtained by s u b t r a c t i n g v a l u e from the next) to p a r t i a l l y e l i m i n a t e  each year's  trend  effects.  Limitations (1)  The v a r i a b l e s being i n c l u d e d  i n t o the r e g r e s s i o n  a n a l y s i s o n l y c o n s i s t of the economic data which have been i l l u s t r a t e d i n the t h e s i s d i s c u s s i o n . t h e r e a r e other f a c t o r s such as p o l i t i c a l , ,  c u l t u r a l t o be c o n s i d e r e d .  Of course, s o c i a l and  But the main theme o f the  t h e s i s focussed on the economic c o e x i s t e n c e between China and Hong Kong as w e l l as the import and export functions  between these t r a d i n g p a r t n e r s .  Using  economic f a c t o r s e x c l u s i v e l y i s j u s t i f i a b l e o n l y when we i n t e r p r e t the r e g r e s s i o n  r e s u l t under such assump-  tions. (2)  With regard to t h e a c t u a l f i g u r e s i n t h e data set,  66 neither  i n f l a t i o n a r y nor  d e f l a t i o n a r y e f f e c t s have  been taken i n t o c o n s i d e r a t i o n  due  to m o d i f i c a t i o n  diffi-  culties. (3)  The  complete set of data being used i n the a n a l y s i s i s  derived  from numerous sources and m i s s i n g data i n some  cases s t i l l  exist.  Thus, the i n c l u s i o n of such f i g u r e s  i n t o the data set i s based p a r t i a l l y on value judgments.  S t a t i s t i c a l Methodology A backward stepwise r e g r e s s i o n exports to Hong Kong was (1)  The  c a r r i e d out  a n a l y s i s of China's  i n which:  backward s o l u t i o n s t a r t s out with the  t i p l e c o r r e l a t i o n (RSQ)  squared mul-  of a l l independent  variables  w i t h the dependent v a r i a b l e . (2)  Each independent v a r i a b l e i s d e l e t e d  from the  regres2  s i o n equation one  at a time, and  the l o s s to R  the d e l e t i o n of the v a r i a b l e i s s t u d i e d .  The  due  to  criterion  f o r s e l e c t i n g which v a r i a b l e to d e l e t e next i s based on the  concept of l o s s i n the R  variance  accounted f o r ) .  The  2  (or the p r o p o r t i o n  l e s s e r the l o s s i n  of  the  2  R , the g r e a t e r  the chance the v a r i a b l e can  without meaningful l o s s . the l e v e l of 0.01  be  deleted  The F P r o b a b i l i t y i s set at  ( m u l t i c o l l i n e a r i t y amongst the  inde-  pendent v a r i a b l e s could o n l y be t e s t e d under such a  ¥7 restrictive basis).  I n other words, each v a r i a b l e i s  t r e a t e d as i f i t were entered l a s t i n the equation.  It  i s thus p o s s i b l e to observe which v a r i a b l e adds the 2 l e a s t when entered l a s t .  The l o s s i n R  t h a t occurs as  a r e s u l t of the d e l e t i o n of a v a r i a b l e may be assessed against  a c r i t e r i o n of meaningfulness.  A v a r i a b l e con-  s i d e r e d not to add m e a n i n g f u l l y to p r e d i c t i o n i s d e l e t e d . (3)  I f no v a r i a b l e i s d e l e t e d ,  the a n a l y s i s i s terminated.  (4)  The remaining v a r i a b l e s appear t h e r e f o r e  to c o n t r i b u t e  m e a n i n g f u l l y to the p r e d i c t i o n of the c r i t e r i o n  variable.  Summary of R e s u l t s A f u l l e r account of the r e s u l t s i s g i v e n i n Appendix. When F P r o b a b i l i t y was set a t the 0.01 l e v e l :  2  Step  R  1  0.6577  2  0.6569  Variable Deleted  X  c  3  0.6458  4  0.6331  6 X„ 4 X  5  0.6021  X  The behind.  Loss i n R  0.0008 0.0111  3  0.0127  r  0.0310  a n a l y s i s i s terminated l e a v i n g X^ and X.  6~8 Statistical  Interpretation 2  The r e s u l t i n g R  = 0.6021 meant that approximately  60 per cent of the v a r i a n c e of Y was accounted by X^ and X in  2  combination. There were o n l y two v a r i a b l e s l e f t , X^ and X2 w i t h  R y . l 2 = 0.6021, 2 Deleting X ^ R 2  Deleting X : 2  R  2 - r J  u  = 0.6021 - (0.4999)  2  2  - r y 2  y  1  2  1  = 0.6021 - (0.1945)  9  = 0.3522 = 0.5643  2  In view of the f a c t t h a t the d e l e t i o n of e i t h e r X^ or X  2  r e s u l t s i n a meaningful l o s s i n the v a r i a n c e accounted  for  (about 35 per cent f o r X^, and about  56 per cent f o r X ) , 2  i t was decided not t o d e l e t e any of the remaining v a r i a b l e s . X^ and X  2  were r e t a i n e d , the r e g r e s s i o n equation was c a l c u -  l a t e d , and the a n a l y s i s was terminated. Y = 11.4267 + 0.1538X  1  + 0.1038X  2  t 44.8332  Comments (1)  I n the a n a l y s i s , China's World Imports ( X ) and China's 2  Trade Balance  (X^) a r e the most s i g n i f i c a n t f a c t o r s i n  determining China's exports t o Hong Kong.  (Normalized  C o e f f i c i e n t as shown i n the computer p r i n t o u t i n Appendix  i n d i c a t e d that the r e l a t i v e s t r e n g t h of X  2  i s 1.3  times s t r o n g e r than X ^ ) . (2)  I t can be concluded that as China imports more from  69 the world,  she has to o b t a i n more f o r e i g n exchange to  f i n a n c e her debts. the s o l u t i o n .  Exports to Hong Kong seems to be  S t a t e d d i f f e r e n t l y , as China  exports  more to Hong Kong, she has a b e t t e r chance to m a i n t a i n a p o s i t i v e trade balance. (3)  Due to data g a t h e r i n g d i f f i c u l t i e s ,  regression analysis  should not be g i v e n too much emphasis i n f o r e c a s t i n g and the use of the d e r i v e d r e g r e s s i o n equation as the p r e d i c t i v e t o o l should be handled with great c a u t i o n . For example, the equation above i m p l i e s a n e g a t i v e e f f e c t of a change i n exports upon imports which i s most u n l i k e l y to occur and i s probably an u n c o n t r o l l e d e f f e c t of double counting i n v a r i a b l e  X . t  70  APPENDIX  D e f i n i t i o n of V a r i a b l e s VAR 1 = Y = China's E x p o r t s t o Hong Kong VAR 2 =  = China's Trade Balance ('-' denotes d e f i c i t )  VAR 3 = X  2  = China's World  Imports  VAR 4 = Xo = China's Imports from the Machinery and Equipment E x p o r t i n g C o u n t r i e s ( i . e . West Germany, Great B r i t a i n , France and Japan) VAR 5 = X. = China's Imports from the G r a i n E x p o r t i n g C o u n t r i e s ( i . e . Canada and A u s t r a l i a ) VAR 6 = X  5  = China's G r a i n Output  VAR 7 = Xg = Hong Kong P o p u l a t i o n  Note:  A l l f i g u r e s are i n m i l l i o n .  *  FORMAT  INMSUC  »  CARDS (bF6.0,F6.2,Ffe.Q) INPUT  VARl  VAR3  VA.^2 30,00  150,0 162,0 115,0 150,0 121,0 157,0 185.0 1915.0 2U5.0 181 iO 208,0 180,0 212.0 280,0  590,0 1120, 1015, 1255. 1290, 1660, UBS.  -300,0  315,0  006,0 165,0 3 9 7 ,0  001,0  11146,0 067 , 0 511,0  631,0 730 ,0 670 ,0 1123, 26 25 NAME VAR 1 VAR2 VAR3 VARO V AR5 VAR6 VAR7 CORRELATION VARIABLE VARl V AR 2 VAR3 VARO  -110,0 -215,0 -230,0 -285,0 150.0 1110, 175,0 182S, . 115.0 2060, 170.0 -70,00 2030 , 1U95, 35.00 375.0 1150. 1200, 370 ,0 1U70, 280,0 190,0 1815, 175.0 2035, -5,000 1950, 1820, 125.0 1830, 200,0 -190.0 2170, 2305, 110,0 2823, 250,0 4975, -17 0,0 7000 , -975.0 7030, -100,0 O B S E R ^ A T I U N S TOTAL DEGREES OF FREEDOM MEAN 361.500 1 , 15385 2202,62  MATRIX VAR 1 1,0000 -0,2570 0,9092  V AR5  VAHb  0,6800  VAR7  0,6253 WRITTEN  2,000 1,000 1,000 5,000 3,000 7,000 13.00 23.00 35,00 32,00 33,00 283.0 235.0 299,0 279,0 263.0 255,0 276,0 200,0 232.0 135.0 200,0 193,0 213.0 220,0  205,0  VAR7  VAR6 1O1.0 155,0 l6t,0 170.0 176,0 182,0 188,0 187.0 205,0 170.0 150,0 160,0 170.0 182,0 195,0 200.0 220.0 231 .0 225.0 • 230,0 210,0 250,0 210,0 255,0 260,0' 265.0  2.300 2.020 2,130 2.210  2,370 2.190 2.620 2,700 2.850 2,970 3,080 3,170 3,300 3,010 3,090 3.590 3.620 3.710 3.790 3.850 3.9O0 0,050 1,080 1,110 1,150 . 0,200  j 1 j •  !  STD,DEV.  36,9067  VAR2 1,0000 -0.5017 -0,3128 0,2850 -0,1698 0,0618 IN  27,00 32.00 20.00 60.00 69,00 8".00 157,0 161.0 203,0 201 ,0 20 1,0 121.0 137.0 172.0 208,0 (156,0' 630,0 696,0 657 ,0 72«,0 921.0 1300 . 1 320, 1761, 1790, 1769.  VARb  252.011 282,582 1680.19 J66.736 1 Y e , 281  _5j i , o o o_ 101,650 200,615 3.20269  0,9535 0,5253  ARRAY  "  VARU  DATA  AREA  VAR3  VARU  VAH5  1.0000 0,8715 0,2968 0.7260 0,6280  1,0000 0,0690 0,9133 0,8363  1 ,0000 0,5319 0,7995  VAR6  VAR7  I**  1,0000 0,8521  1  I  1,0000  72  © © o o o © o o o o o o c © o © o CS o 0 0 0 , 0 0 0 r o —• O l «-«-0 rO X>  —• —• r\j o  o Ot o  o  rvj  o o  o o j o  O O o  o ! o o ! o OjO i • •> • »3 ryq^  O O O  © o o -O  o o o 0>-  o o o  o O o o *j • »o ^> — -  O OjO o o o o o| • o o o o ojo * O r o —«/VI ^ -£> r \ j  I  o o  o ol o o o o o o olo o o o o • ol • • o • o r\i o • un m  or- • r\i I  o o • -O —«  o o o  l i t  © o o o o o o X) -O o ^  o oi© o  o o j o o olo • o • T •oj—» — >n o n ^ *  O -O - «  o o O  O  o o  © o ©• © o © o © 0 1 o o o| — o; o o o ^3 £  o o o —  o O o • ©  o o — -  o © o  o O O o o « o in  © © © © o o ! o o o o oi • * o • « •© • c o OJ rO c u  AJ J J  o o o .-o  o o o y i  jj  o  o  o  ;  o o o o| o o 3 ml  O Ol o © © o' © o o • • • © 0| o o ' m »  ©I  in  f-  -*  r- un »•'© <  t I  -O r - j O j r-- — I  in ® i n OJJ jfl r o © — ro oi  o o o © © • o; » o ©! ~D m\zr O H o r- o | J D • rvj rO f\Ji=T OJ o j —• u o r o x>  —»j  • X> -TT ' • « -c m! x> o r - •© o r -  • - * —. o  o in o © ^ i© o j 4 © o  o ot© © o o ©;o o o • o • o  © o © o o o o 5 • - O O O  © ; O J  o  ;  o © O O o o © o o © © © © o o O O O ; • • in i n -j o m ©! • o i n _n - m m o m a o - o j O J ©I o i n r-> r - un cO rO O ' f O N N a i t n ^ o 3 — o O — i r v r o j r o ~« a •OftJf O U l fO ifi OJ fO —• !<0 —• — r o injoj nj ^ o  o ©! o  o  o o  C CT r u r o o jn • m © cr ro o o • • • o x rO s o  O  <I  o  O  UJ  (O  »  •O  O J PO  UJ ^» if- CT— -o c r rv 3 o >o c r i n —  o O o o  X)  t> CO — r>- o m oj  —« o O o o o l o O O o o o j o o o © o O !© O O © © •! • • © o o o ; • • • o o | o • • • o O O O ' O 'J> / I • o i i n o o o © j ^ i - o ro i n • tn injin ro i n • (\J o N i r - - * i n ^ AJ -n -O ; TJ T> X) © i n O J — " o ^n • • I 3  —  CO -O O U. a. «!  r-  • O -o co r o i n n j r o A i —•  . I o © © o O O O © • - • — r» r - c r r u N a ) <r  o i O a —  o  K»| in ru  o o |2 M O <a o - o oj • r\j x cc ro i n  o o o OJ O X) • X) r\i • r- o ru O  * a - rOj X) |r*- - o — . <£> r*- o © I rO =J  O OJ OJ c o O l -O r - XJ o - l C O OJ  o  jo ; © (© i O •© < O J =J ;  — x» - • l X> Tf  £ —  •4 -4 4 «X -4 < — • A J PO ^3 pr. *-* c c ct tr o r a : a r < < <x  P  4 >• > >  o j ro  r\j  —  BACKWARD  CONTROL  r  ARRAY  RESTORED  FROM  AREA  CARD NO",  DEPENDENT STEP  NO,  VARIABLE  IS  TU H,K,  * STPREG *  CARD NO,  *  1  STPREG *  VARl  0,6577 0,0018 15.9719  NU,  COEFF 12,1339 0,1575 0,1069 -0,0781 -0.1?12 1.3159 -23,2729  COEFF 10.5108 0,1565 0,1079 -0.0822 -0.1258 1 .3520  INDEPENDENT PARTIAL  VAR7 NO,  F-RATIO  FPROB,  NORM COF.rF  18,8158 23.6266 0.7321 0,5691 2,2885 0,0398  0,0001 0.0002 0.1078 0.1662 0,1113 '0.8212  0,7155 0,9163 -0.1171E+00 -0.1082E+00 0,2310 -0.3027E-01  STD ERR 11.1666 0,0350 0,0208 0.0868 0,1602 0,8290  F-RATIO  FPROB,  19,9833 26,7989 0,6975 0,6169 2,6600  0.0003 0,0001 0,3581 0,1171 0,1159  ,  0,6569 0,0006 11.7982  VAR CONST, . VAR2 • VAH3 VARl VAR5 VAR6  POTENTIAL  STD ERR 11,8755 0.0363 0,0220 0,0913 0,1616 0.8698 116,5893  2  RSQ s FPROB, = STO ERR Ys  STEP  "  EXPORTS  1  VAR CONST, VAH2 VAR3 VARU VAR5 V AR 6 VAR7  .  ~~'  ANALYSIS UF CHINA'S  REJECT 0.01001  RSQ s FPR08, a STD ERR Y S  STEP  3  REGRESSION  1  CONTROL FPRUB L E V E L ACCEPT O.O10OO  STEPWISE  COEFF  0,7108 0,9573 - 0 , 1550E + 00 •0.1097E+00 0,2371  VARIABLES) CORR.  0,0170  3  RSQ s FPROB, s STO EKR y s  NORM  0,6158 0,0003 11,3670  TOLERANCE  FPROB  0,8270  0,82(12  <1  63  f  VAR CONST, VAR2 VAR3 VARU VAR6 POTENTIAL  COEFF 8,9667 0.1570 0,109(1 -0.0720 1 .2318  INDEPENDENT PARTIAL  VARS VAR7 STEP  NO,  F-RATIO  FPROB,  20,4892 28,3719 0,7176 2,3306  0,0002 0,0000 0,41 15 0,1390  F-RATIO  FPROB,  20.1887 30.8290 1.7710  0,0002 0,0000 0,1949  F-RATIO  FPROB,  19.4757 31.2049  0,0003 0,0000  NORM  COEFF  0,7428 0,9711 -0,1357E+00 0,2162  VARIABLES) CORR,  0,1773 0,0550  TOLERANCE  FPROB  0,9263 0,8291  0,4474 0,7985  tt  RSQ FPROB, STO ERR  0.6331 0,0001 «tt,0676  a  VAR CONST, VAR2 VAR3 VAR6 POTENTIAL  COEFF 7.1056 0.1539 0.1018 1.0075  INDEPENDENT PARTIAL  VARtt VARS VAR 7 STEP  STD ERR 10,8796 0.0147 0,0205 0,0850 0,8069  NO.  STD ERR 10,5835 0,0343 0,0183 0,7571  NORM  COEFF 0.7284 0,9033 0,1769  VARIABLES! CURR.  0,1861 0 , 1(1(13 0,0933  TOLERANCE  FPROB  0,6898 0,9(177 0,8703  0.«115 0.528(1 0,6815  5  RSQ FPROB, STD ERR  3  0.6021 0,0000 ««,6332  ys  VAR CONST, V AR 2 VAR3 POTENTIAL  COEFF 11,4267 0.1538 0,1038  INDEPENDENT PARTIAL  VARtt VARS VAR6 V AR 7  STO tRR 10,2481 0,03(19 0,0186  VARIABLES) CORR,  0,0773 0.0973 0.2789 0.1269  TOLERANCE  FPROB  0,7731 0,9675 0,9892 0,8869  0,7236 0,6619 0.1949 0,5704  NORM  CUEfF 0.7279 0,9213  .  <  >  :  j j  | I  NO, 1, 2. 3. 1. 5. 6. 7, 8, <». 10. 11. 12. 1 J. H. 15. 1*. 17, 18. 19. 20.  OBSERVED 12.000 -17,000 5,0000 -29.000 36,000 28,000 13.000 17,000 •61,000 27.000 •28,000 32,000 18,000 85,000 61,000 79,000 -88,000 1,0000 15,000. 21,000 77,000 21. 87.000 22. 99,000 2J. 110,00 24. 253,00 25. AUTOCORRELATION C O E F F , DURBIN-xATSON D S T A T I S T I C PR0BABILITV(<SPW3)  CALCULATED 9.5115 31.288 21,808 12.753 11,381 60,166 10,600 12.169 11,284 -28.603 -27.967 27,904 15,819 25,615 36,516 28.845 . -25,081 17,925 21.001 -13.261 71,566 86.739 167.44 97,845 190.65 •0,040 1,992 0.130  RESIDUAL 2.4585 •48,268 -19,808 -41.753 •5.3806 -32,166 2.1000 4.8311 -108,28 55.603 -0.32852E-01 4,0957 32.151 59,385 24,481 50.155 •62,916 -13.925 20.999 34.261 .5,4144 0.26086 -68,445 42.155 62.346  NORMALIZED RES 0.54837E-01 -1,0771 •0.44181 -0.93130 -0,12001 •0,71745 0.53532E-01 0,10776 -2,4153 1.2402  /  •  -0.73276E-03 0.91355E-01 0.71713 1,3246 0,5461 1 1.1167 -1,4033 •0,31060 0,46839 0,76418 0,1207 7 0.58165t-02 -1,5266 0,94025 1,3906  -i  i  1-3  76  BIBLIOGRAPHY  Books  American Management A s s o c i a t i o n .  Trade With China.  1972.  B a r n e t t , K. M. A. P o p u l a t i o n P r o j e c t i o n s F o r Hong Kong, 1966-1981. Hong Kong, 1968. C a h i l l , Harry A. 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