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An empirical analysis of direct foreign investments in manufacturing in Hong Kong Hung, Chiu Ling


This thesis presents an empirical analysis of direct foreign investments in manufacturing in Hong Kong. The analysis is based upon two main data sources - Hong Kong government statistics and a questionnaire survey conducted in March 1979. The data collected are put together to provide a comprehensive picture of the investment pattern of the foreign manufacturers and to pinpoint their economic significance to Hong Kong. Their operational characteristics as well as their motives and needs are also explored to give better insights into their activities and to test the validity of direct foreign investment theories. Hong Kong has an extremely liberal economic policy and there is very little government intervention in private business activities. This policy is extended to its treatment of foreign investment. The outstanding feature is that it does not differentiate between foreign and local corporations. Consequently, there is no special restriction on foreign investment, but neither is any concession given. Foreign investors find this policy most agreeable. There is intensive and diversified foreign investment interest in Hong Kong. With the only exception of manufacturing, foreign investors now hold dominating positions in all major economic sectors. The number of foreign manufacturers comprises only about one percent of the total number of manufacturing establishments in Hong Kong, but their contributions in terms of providing industrial employment and exports are approximately ten times as much. More significantly, their investments have helped Hong Kong very much in its efforts to upgrade and diversify its industries. They are an important agent for transferring technology into Hong Kong. Foreign investors in manufacturing have come mostly from the U.S., Japan, Western Europe and Asian Pacific countries. The industries in which they have invested most are electronics, textiles, chemical products and electrical products. Foreign investments in manufacturing in Hong Kong are mostly of the export oriented type. There are close links in management, production and marketing established between the foreign manufacturers and their overseas affiliates indicating that their operations are integrated. Furthermore, foreign manufacturers appear to have a higher degree of sophistication and diversification in their production and marketing operations than their local counterparts. A comparison between U.S. and Japanese investment characteristics shows that four out of five hypothetical propositions derived from theoretical U.S. and Japanese foreign investment models are supported. There is enough evidence to indicate that the industries in which Japanese corporations invested are different and are technologically less advanced, that Japanese manufacturing operations are more labour intensive, that Japanese firms use unadapted home country technology more often and that Japanese firms export back to Japan a greater proportion of their sales than U.S. firms do to the U.S. The only one of the hypotheses examined which cannot be supported is that there is a higher incidence of minority holdings and joint ventures being used by Japanese manufacturers. In Hong Kong, both the U.S. and Japanese manufacturers have a strong preference for majority or full ownership.

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