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U.S. DEPARTMENT OF STATE
HONG KONG: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                            HONG KONG

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                     1992      1993      1994 1/

Income, Production and Employment:

Real GDP (1990 prices)             83,805    88,807    93,991
Real GDP Growth (pct.)                6.0       5.9       5.7
GDP (at current prices)           100,622    14,738   131,086
GDP by Sector:  (pct.)
  Agriculture                         0.2       N/A       N/A
  Energy/Water                        2.2       N/A       N/A
  Manufacturing                      13.7       N/A       N/A
  Construction                        5.1       N/A       N/A
  Rents                               3.2       N/A       N/A
  Finance 2/                         24.5       N/A       N/A
  Other Services 3/                  35.9       N/A       N/A
  Government/Health/Education        15.2       N/A       N/A
Net Exports of Goods & Services
  (at current prices)               5,840     9,152     5,050
Real Per Capita GDP (1990 prices)  14,419    15,004    15,619
Labor Force (000s)                  2,820     2,929     2,977
Unemployment Rate (pct.)              2.0       2.0       2.2

Money and Prices:  (annual percentage growth)
 
Money Supply (M2)                    10.8      16.0      11.8
Base Interest Rate (pct.)
  Prime Rate                          6.5       6.5       8.5
Personal Savings Rate (pct.)          1.5       1.5      3.75
Retail Inflation 4/                   N/A       N/A       N/A
Wholesale Inflation 4/                N/A       N/A       N/A
Consumer Price Index 5/             125.2     135.9     151.1
Official Exchange Rate (HKD/USD)    7.741     7.736     7.726

Balance of Payments and Trade:

Total Exports (FOB)               119,487   135,244   150,857
  Exports to U.S. (FOB)            27,259    31,107    35,196
Total Imports (CIF)               123,816   139,052   159,909
  Imports from U.S. (CIF)           9,119    10,266    11,300
Aid from U.S.                           0         0         0
Aid from Other Countries                0         0         0
External Public Debt                    0         0         0
Annual Debt Service                     0         0         0
Foreign Exch. Reserves 6/          35,250    43,003       N/A
Trade Balance                      -4,329    -3,808    -9,052
  Trade Balance with U.S.          18,410    20,841    23,896


N/A--Not available.

1/ 1994 projections are by the Consulate and are based on first
three quarters statistics.  1994 exchange rates were based on 
HKD 7.726 to US $1.00; 1992 and 1993 exchange rates as listed.
2/ Includes financing, insurance, real estate and business
services.
3/ Includes wholesale, retail, import/export trades,
restaurants, hotels, transport, storage and communications.
4/ Hong Kong government provides only the consumer price index
(CPI).
5/ Oct 1989-Sept 1990 equals 100; CPI(A) covers urban
households with monthly expenditure of US $325-1300
(approximately 50 percent of households).
6/ Foreign currency assets of exchange fund (US dollars).

Statistical Note:  the Census and Statistics Department has
recently completed a non-routine revision of GDP, to base real
GDP at 1990 prices and to include certain offshore service
activities.



1.  General Policy Framework

    The Hong Kong government pursues economic policies of
noninterference in commercial decisions, low and predictable
taxation, government spending increases within the bounds of
real economic growth, and competition subject to transparent
laws (albeit without anti-trust legislation) and consistent
application of the rule of law.  Market forces determine wages
and prices in Hong Kong, with price controls limited only to
certain government-sanctioned monopolies in the service
sector.  There are no restrictions on foreign capital or
investment, except for some limitations in the media sector,
nor are there export performance or local content
requirements.  Profits may be freely repatriated.  There are
some barriers to entry in certain service sectors, in
particular medicine, law, and aviation.  Hong Kong reverts to
People's Republic of China (PRC) sovereignty in 1997, but China
has committed to leaving Hong Kong's economic system intact for
50 years.

    Hong Kong's free market, generally non-interventionist
policies have spurred high rates of real growth, low
unemployment, rising wages, and one of the highest per-capita
GDP levels in the world.  The growing economy has produced
additional tax revenues despite modest increases in excise,
real estate and business profits taxes.  The corporate profits
tax is 16.5 percent, and personal income is taxed at a maximum
rate of 15 percent.  Property is taxed; interest, royalties,
dividends, capital gains and sales are not.  In spite of the
growth of government spending from approximately 14 percent of
GDP in the mid 1980s to about 19 percent by the early 1990s,
the Hong Kong Government annually runs budget surpluses and has
amassed large fiscal reserves.

    Asset price inflation, a dominant feature of Hong Kong's
economy during 1993, has shown signs of moderating during the
second half of 1994 as interest rates have increased. 
Skyrocketing property prices have fallen some 10-15 percent
since June 1994, when the government introduced a package of
measures designed to curb property speculation, release more
land for building, and accelerate major housing projects.  Hong
Kong's Hang Seng index of blue chip stocks, which increased by
116 percent in 1993, was down by 1.7 percent year-on-year as of
November 15, 1994.

    Hong Kong is a duty-free port.  It levies consumption taxes
on certain goods, including tobacco, alcoholic beverages,
methyl alcohol and some fuels, but otherwise goods trade
freely.  Hong Kong is also an entrepot for Chinese and regional
trade.  In 1993, Hong Kong reexported US $106 billion worth of
goods made elsewhere, more than three times as much as it
produced domestically for export (US $29 billion).  One third
of all of China's exports flow through Hong Kong on their way
elsewhere, and 25 percent of China's imports come via Hong
Kong.  The opening of China, and especially the development of
Guangdong province as a low-cost manufacturing base, has
encouraged Hong Kong to shift from a manufacturing to a
services-based economy; over 75 percent of Hong Kong's GDP now
derives from the service sector, much of it connected in one
way or another with China.

    The Hong Kong dollar is linked to the U.S. dollar at an
exchange rate of HKD 7.8 = US $1.00.  The link was established
in 1983 to encourage stability and investor confidence in the
run-up to Hong Kong's reversion to Chinese sovereignty in
1997.  The linked exchange rate requires that Hong Kong
interest rates generally track U.S. interest rates.  Despite
several interest rate increases during 1994, Hong Kong's
prevailing 8 percent inflation rate has meant that savers have
continued to face negative real interest rates.

    On July 1, 1997, Hong Kong will revert to PRC sovereignty. 
As guaranteed by the 1984 Sino-United Kingdom (UK) "Joint
Declaration" and the 1990 PRC "Basic Law" -- the latter passed
by China's National People's Congress -- Hong Kong will become
on July 1, 1997, a "Special Administrative Region" (SAR) of the
PRC.  China will take over responsibility for Hong Kong's
foreign affairs and defense.  However, under China's "one
country, two systems" doctrine, Hong Kong has been guaranteed
"a high degree of autonomy" in managing its economic, social,
legal, budget and other internal policies for fifty years. 
Hong Kong will remain a separate customs territory with all of
its current border arrangements, and it will retain its
independent membership in economic organizations such as the
GATT.

    Sino-British consultations on transition concerns take
place chiefly in the Joint Liaison Group (JLG).  The JLG (or
other joint bodies) must approve Hong Kong's laws, economic
agreements with third countries, and economic decisions that
will stretch beyond July 1, 1997.  This includes major
infrastructure contracts and franchises, such as the new
airport and port projects.  Cooperation on transition issues in
the JLG has been uneven because of China's opposition to
Governor Patten's electoral reforms, which were implemented in
1994.

    Hong Kong ratified the Uruguay Round agreements and became
a founding member of the World Trade Organization (WTO) on
January 1, 1995.  Hong Kong strongly supports an open
multilateral trading system and is a member, in its own right,
of a number of other multilateral organizations, including the
Asia Pacific Economic Cooperation (APEC) forum and the Asia 
Development Bank, notwithstanding its status as a colony of the
United Kingdom.  In other international economic fora, such as
the International Telecommunications Union or the International
Labor Organization, Hong Kong participates as part of the UK
delegation.


2.  Exchange Rate Policies

    The Hong Kong government remains firmly committed to
ensuring currency stability through the linked exchange rate to
the U.S. dollar.  Authority for maintaining the exchange value
of the Hong Kong dollar as well as the stability and integrity
of the financial and monetary systems rests with the Hong Kong
Monetary Authority, which was established in April 1993 through
the consolidation of the Office of the Exchange Fund and the
Commissioner of Banking.  There are no multiple exchange rates
and no foreign exchange controls of any sort.

    Under the linked exchange rate, the overall exchange value
of the Hong Kong dollar is influenced predominantly by the
movement of the U.S. dollar against other major currencies. 
The price competitiveness of U.S. exports is affected in part
by the value of the U.S. dollar in relation to third country
currencies.  While the proportion of Hong Kong's imports from
the United States. has declined slightly as a percentage of its
total imports in recent years, Hong Kong still consumes more
U.S. goods per capita than almost any other economy.  U.S.
firms have increased exports to Hong Kong by well over
US $1 billion each year in the 1990s.


3.  Structural Policies

    Hong Kong's generally non-interventionist policies have
brought rising prosperity and low unemployment to the colony
and have created an attractive barrier-free market for U.S.
goods exporters and most services providers.  There are
virtually no controls on trade and industry other than to meet
standard obligations associated with health, safety and
security.  Procurement is conducted on an open basis, although
Hong Kong elected this year to remove itself from the GATT
Government Procurement Code.  While in the past British firms
seemed to enjoy an advantage in bidding for major contracts,
U.S. firms have more recently been quite successful in both the
design and supply stages of major projects.  Other factors
often cited for Hong Kong's dynamic economic success include a
simple, low-rate tax structure, a well-educated and industrious
work force, and an extremely efficient transportation and
communications infrastructure.

    Hong Kong takes justified pride in the efficiency of its
port, the world's largest in container throughput, and the
airport, the fourth-largest in terms of passenger traffic.  But
these facilities are under severe strain given robust economic
growth in the region and projections for continued strong
growth well into the future.  Major new infrastructure,
including the replacement Chek Lap Kok (CLK) airport and
Container Terminal No. 9 (CT-9) are badly needed to ease
congestion and ensure Hong Kong's continued competitiveness as
a center for trade.

    In November, the UK and China reached agreement on a
financing package for CLK that sets the overall level of debt
and equity in the Provisional Airport Authority (PAA) and Mass
Transit Railway Corporation (MTRC).  The two sides must still
reach accord on separate financial support agreements before
the PAA and MTRC will be able to borrow on international
markets.  Once these are resolved, and Sino-British agreement
is reached on the draft airport corporation bill, the PAA will
be able to complete tendering for airport services franchises,
such as catering, cargo handling, fuel supply and aircraft
maintenance.


4.  Debt Management Policies

    The Hong Kong government has minuscule public debt. 
Repeated budget surpluses have meant that Hong Knog has not had
to borrow.  To promote the development of Hong Kong's debt
market,  in March 1990the government launched an exchange fund
bills program with the issuance of 91-day bills.  Maturities
have gradually been extended, and, in October 1993, the Hong
Kong Monetary Authority issued five-year notes, with maturities
that extend beyond Hong Kong's reversion to Chinese
sovereignty.  Under the Sino-British Agreed Minute on financing
the new airport and related railway, total borrowings for these
projects cannot exceed US $2.95 billion, and such borrowings
"will not need to be guaranteed or repaid by the government." 
Liability for repayment will rest with the PAA and MTRC.


5.  Significant Barriers to U.S. Exports

    As noted above, Hong Kong is a duty-free port with no
quotas, anti-dumping laws, or other barriers to the import of
U.S. goods.  Phytosanitary standards are generally compatible
with U.S. exports of agricultural products.  In fact, according
to Commerce Department data, Hong Kong was the 11th largest
market for U.S. goods in the world last year, recognizing that
a significant portion of those exports are actually reexported
to China.

    Market domination by several firms:  Hong Kong does not
have anti-trust laws.  Certain sectors of its economy are
dominated by monopolies or cartels, some but not all of which
are regulated by the government.  These companies do not
necessarily discriminate against U.S. products.  However, many
of them actively campaign against foreign competitors, for
example in the aviation sector.

    The government's policy is to discourage unfair trade
practices -- see, for example, the Governor's 1992 and 1994
policy addresses.  While there are no agencies with anti-trust
powers, the Consumer Council is tasked, inter alia, with
reporting on anti-competitive behavior in the market.  Its
reports can spur government action.  For example, the
government decided to remove the interest cap for time deposits
after reviewing the Council's report on banking, although the
government chose not to dismantle the interest rate bank cartel
itself.

    The Hong Kong government has promised to work more closely
with the Consumer Council on its publications of other sector
specific study reports on supermarkets (just completed),
broadcasting, telecommunications, gas supply and the
residential property market.  The government has committed to
provide funds for the Council to establish a trade practices
division with a view to improving competition.  And in July
1994, the government ended the prohibition on the Council from
investigating several specific entities, including the air
cargo handling monopoly, the international basic telecom
monopoly, and the hospital authority.

    Telecommunications/Basic Voice:  Value-added telecom
services in Hong Kong are open to competition, as are mobile
communications.  However, basic public voice services are
provided under exclusive franchise.  Hong Kong Telecom
International (HKTI) has the exclusive license until September
30, 2006, to provide a range of international telephone
services.  This has constrained at least one U.S. company from
offering its full range of services in Hong Kong; however, that
company plans to submit an application to Hong Kong regulatory
authorities arguing that its services should rightly be
considered "value-added", and hence not restricted.

    Professional Services:  Physician services -- UK-trained
physicians may practice in Hong Kong with pro forma
certification, and some Commonwealth nationals receive
expedited certification, but other foreign doctors are
forbidden from practicing without going through a lengthy
testing and retraining program.  The special privileges
afforded to British and Commonwealth doctors will likely be
abolished.  There is no indication that other foreign doctors
will be any better treated, however.

    Lawyers/Law Firms:  Foreign law firms have been barred from
hiring local lawyers to advise clients on local law -- even
though Hong Kong firms can hire foreign lawyers to advise
clients on foreign law.  In amendments passed earlier this
year, foreign law firms may now become "local law firms" and
hire Hong Kong attorneys, but they must do so on a strict
1:1 ratio with foreign lawyers.  In addition, there are
restrictions on use of firm names for foreign firms.  For
foreign firms already in Hong Kong, the situation has
improved.  However, for new-to-market firms, the playing field
is still not level.  With respect to qualifying to practice
Hong Kong law, the Law Society has been working on a revised
exam that should facilitate U.S. attorneys' ability to sit and
pass the Hong Kong bar exam.

    Airport Aviation Services:  At Hong Kong's present airport,
Kai Tak, maintenance, cargo handling, catering and other
aviation services are provided by one of two UK-affiliated
companies.  This has prevented U.S. service providers from
competing and has denied U.S. airlines adequate competitive
choice and prices.  The Provisional Airport Authority,
overseeing construction of the new airport, has committed to
having multiple service providers.  The United States has
strongly urged Hong Kong economic policy-makers to follow
through on the commitment to expand competition in these areas,
notwithstanding the pleas by the duopolists for an extension of
their privileged positions.

    Civil Aviation Agreement:  The U.S.-Hong Kong civil
aviation market is ruled by the restrictive provisions of the
U.S.-UK Bermuda II agreement.  Since this agreement will become
invalid when sovereignty over Hong Kong shifts from the UK to
the PRC in 1997, U.S. and Hong Kong negotiators met twice in
1994 to seek an independent bilateral agreement.  The U.S. is
pressing for a substantially more open civair market, including
"fifth freedoms" for cargo and more fifth freedoms and
additional gateways for passenger carriers.

    High Alcohol Taxes:  In 1994 Hong Kong amended its alcohol
taxation system, moving to a 90/100 percent ad valorem tax on
grape wines and spirits respectively.  This is an improvement
over the prior system from the perspective of most U.S.
alcoholic beverage exporters.  However, the high tax rate is an
impediment to expanding U.S. sales.


6.  Export Subsidies Policies

    The government neither protects nor directly subsidizes
manufacturers, despite calls from some local legislators to do
so.  However, a number of quasi-governmental organizations do
provide substantial indirect support to industry.

    The Hong Kong Trade Development Council (HKTDC) engages in
export and import promotion activities with a total revenue of
US $148 million and a total expenditure of US $106 million. 
About half of HKTDC's budget comes from a tax on exports
(0.05 percent) and imports (0.035 percent), and the other half
from internal operations (trade shows, magazines).

    In August 1994, the U.S. Trade Representative's (USTR)
office, acting on a Section 308 petition filed by a Hong Kong
publishing company with U.S. financial interests, sought
information from the HKTDC with respect to its trade
publications.  Specifically, the petitioner stated that the
HKTDC subsidized its trade magazines, permitting HKTDC's
magazines, which are direct competitors with the private
sector, to charge advertising rates up to 50 percent below
market price.  On November 4, the Hong Kong government supplied
information to the USTR's questions.  In the meantime, Hong
Kong also submitted a page of questions of its own to the USTR
about similar U.S. promotional activities.

    In answer to one of the USTR's questions, the HKTDC
acknowledged that it had, in one case, provided US $300,000 in
legal defense funds to Hong Kong sweater makers facing dumping
duties in the United States.  The HKTDC pointed out that U.S.
courts subsequently rejected the U.S. government's findings of
dumping, thus justifying HKTDC's support of Hong Kong's
manufacturers.

    Another statutory body, the Hong Kong Industry Technology
Center Corporation (HKITCC), established in June 1993, promotes
technological innovation and application of new technologies in
Hong Kong industry.  The government has allocated US $26
million to the center, together with a loan of US $24 million
for research and design activities.  The loan is interest
bearing at seven percent per year.  The main programs are 
incubation, technology transfer and research and design support
services.  There are now six pilot projects.  These companies
enjoy a 70 percent discount on the market rental of the tech
center offices, and 45 percent and 25 percent in subsequent
years.  Any Hong Kong registered company is eligible to apply,
provided it is less than three years old and has fewer than 20
employees.

    The Hong Kong Productivity Council (HKPC) is financed by
annual government allocations and by fees earned from its
services.  With 500 staff members, HKPC provides a variety of
training programs, industrial and management consultancies, and
technical support services.  HKPC invites local companies to
join consortia to share the design and development cost of new
products.

    The Hong Kong Export Credit and Insurance Corporation
(ECIC), a statutory body set up in 1966, provides insurance
protection to exporters.


7.  Protection of U.S. Intellectual Property

    Hong Kong's intellectual property laws and their
enforcement are among the best in the world.  However, with a
massive increase in pirate production in China over the last
twelve months, especially in music and software compact discs,
the Hong Kong market has suffered.

    Hong Kong has acceded to the Paris Convention for the
Protection of Industrial Property, the Bern International
Copyright Convention, and the Geneva and Paris Universal
Copyright Conventions.  Hong Kong has enacted laws covering
trademarks, copyright for trade descriptions (including
counterfeiting), industrial designs, maskworks, and patents.

    Inasmuch as Hong Kong's intellectual property statutes are
based chiefly on laws of the United Kingdom, they will have to
be "localized" for post-1997 application.  Drafts of the laws
indicate that, if anything, the process of localization will be
used by the Hong Kong government to strengthen existing laws.

    Enforcement:  The Customs and Excise Department is
responsible for enforcing the criminal aspects of intellectual
property rights.  The department has a special IPR unit with
over 100 employees; in addition to conducting raids on local
establishments and street vendors, this unit works closely with
the anti-smuggling task force to combat suspected smuggling
operations.  In the first eight months of 1993, there were 298
seizures of copyright infringing products with a total value of
US $2.5 million and 614 seizures of goods violating trademarks
and trade descriptions with a total value of US $50 million.

    Most of the pirate manufacturers have been driven out of
Hong Kong in the last several years.  However, many have
established operations across the border in south China.  One
U.S. music company has seen its sales in Hong Kong fall 40
percent in the last six months.  Hong Kong judges have handed
down penalties that seemed at times too light to be a
deterrent, although recent cases indicate sentences may be
getting tougher.  However, attacking pirate production at its
source will be the most effective remedy for Hong Kong's market.


8.  Worker Rights

    Protection afforded under Hong Kong ordinances extends to
both local and foreign workers in all sectors.  Injuries and
occupational diseases qualifying for compensation, while
normally not specified by industry, cover injuries resulting
from use of industrial machinery as well as disease caused by
exposure to physical, biological or chemical agents.

    a.  The Right of Association

    The right of association and the right of workers to
establish and join organizations of their own choosing are
provided for under local law.  Unions are defined as corporate
bodies and enjoy immunity from civil suits arising from
breaking of contingent contracts or interference with trade by
work stoppages on the part of their members.  The Hong Kong
government does not discourage or impede union formation or
discriminate against union members.  Workers who allege
anti-union discrimination have the right to have their cases
heard by a government labor relations body.

    b.  The Right to Organize and Bargain Collectively

    The right to organize and bargain collectively is
guaranteed under local law.  However, the latter is not widely
practiced and there are no mechanisms to specifically encourage
it.  Instead, a dispute settlement system administered by the
government is generally resorted to in the case of
disagreements.  In the case of a labor dispute, should initial
conciliation efforts prove unsuccessful, the matter may be
referred to arbitration with the consent of the parties or a
board of inquiry may be established to investigate and make
suitable recommendations.

    c.  Prohibition of Forced or Compulsory Labor

    Compulsory labor is prohibited under existing legislation.

    d.  Minimum Age of Employment of Children

    Under regulations governing the minimum age for employment
of children, minors are allowed to do limited part-time work
beginning at age 13 and to engage in full-time work at age 15. 
Employment of females under age 18 in establishments subject to
liquor regulations is prohibited.  The Labor Inspectorate
conducts work place inspections to ensure that these
regulations are being honored.

    e.  Acceptable Conditions of Work

    Wage rates are determined by supply and demand.  There is
no legislated minimum wage.  Hours and conditions of work for
women and young persons aged 15 to 17 in industry are
regulated.  There are no legal restrictions on hours of work
for men.  Overtime is restricted in the case of women and
prohibited for all persons under age 18 in industrial
establishments.  In extending basic protection to its work 
force, the Hong Kong government has enacted industrial safety
and compensation legislation.  The Hong Kong Labor Department
carries out inspections to enforce legislated standards and
also carries out environmental testing and conducts medical
examinations for complaints related to occupational hazards.

    f.  Rights in Sectors with U.S. Investment

    U.S. direct investment in manufacturing is concentrated in
the electronics and electrical products industries.  Aside from
hazards common to such operations, working conditions do not
differ materially from those in other sectors of the economy. 
Labor market tightness and high job turnover in the
manufacturing sector have spurred continuing improvements in
working conditions as employers compete for available workers.



  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                                496
Total Manufacturing                                    2,660
  Food & Kindred Products                      -1
  Chemicals and Allied Products               149
  Metals, Primary & Fabricated                (1)
  Machinery, except Electrical                302
  Electric & Electronic Equipment           1,559
  Transportation Equipment                    (1)
  Other Manufacturing                         531
Wholesale Trade                                        3,624
Banking                                                1,079
Finance/Insurance/Real Estate                          1,562
Services                                                 443
Other Industries                                         594
TOTAL ALL INDUSTRIES                                  10,457   

(1) Suppressed to avoid disclosing data of individual companies
Source: U.S. Department of Commerce, Bureau of Economic
Analysis

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