China's Hong Kong connection swells

In its determined quest for modernization, China has made Hong Kong one of its main conduits to the rest of the world. By the end of this century, many foreign analysts here believe, this relationship could lead to an expansion of trade that results in a thriving megalopolis, bustling with industrial zones, and crossing political and ideological borders from the British colony to Canton. These analysts see an informal but close integration of the economies in trade, banking, communications, and industrial links.

Already, hong Kong is emerging as the most important offshore base for financial institutions and multinational corporations interested in investing in the People's Republic. For their part, the Chinese have deliberately encouraged these developments by giving assurances over the continued political status quo of Hong Kong. In fact, Chinese leaders have repeatedly emphasized the "Hong Kong dimension" of their country's ambitious plans for economic modernization.

Trade: Hong Kong is a major external market for China. Chinese exports to Hong Kong have shot up from $1.2 billion in 1974 to $3.026 billion last year. In addition, another $1.133 billion worth of Chinese goods were re-exported through Hong Kong last year.

Chinese exports to Hong Kong consist mainly of foodstuffs, consumer goods, construction materials, and in recent years growing quantities of petroleum products. China's competitive edge in these products is such that for years it has consistently maintained a one-sixth share of the Hong Kong market, ranking a close second behind Japan as the principal supplier. Analysts expect China to move past Japan as a supplier. Analysts expect China to move past Japan as a supplier in the coming year as imports of petroleum and coal grow.

Exports and re-exports from Hong Kong into China were the highlight of last year's trade. Chinese imports from Hong Kong shot up by a massive 549 percent, from $59 million in 1978 to $383 million last year. China also imported a lot of foreign goods through the colony. Re-exports from hong kong to China reached

Chinese interests also own and operate scores of wholesale and retail outlets for their products in hong Kong, which acts as a good testing ground for tastes and standards of the capitalistic world. To supplement the semiannual Canton Trade Fair, China has also held minifairs and exhibitions in the colony in recent years to attract Western buyers.

Banking, finance, and investment: To finance its external trade, China operates the Bank of China and 12 sister banks in the colony. Whereas these 13 banks had only 46 branches in 1969, a decade later they had trebled their network to 142 branches. In addition to routine financing of trade, these banks have been active in foreign-currency dealing and lending to local businesses. By participating in a syndicated loan for a local enterprise, Bank of China last year made its debut in international merchant banking.

Foreign banks have not lagged behind in their attempts to penetrate the China market, either. There are 81 foreign banks with full-fledged operations in Hong Kong, of which 41, or nearly half, rushed to the scene in 1978-79, when the government began issuing new banking licenses. But the onrush was so heavy that last august that the local government stopped issuing new licenses.

Industry: A significant portion of Hong Kong bank lendings relating to China goes into industrial investment in China's Guangdong (Kwantung) Province, which borders Hong Kong and has gained increased autonomy and opened up several industrial zones in areas adjoining the colony. Scores of joint ventures and compensation trade deals were signed between local companies and Guangdong industrial companies last year. These involve light industries like textiles, electronics, and plastics, some tourist facilities, and even residential complexes to be sold to overseas Chinese who want to own property in China.

Last month, China Merchant Steamship Navigation (CMSN), a local enterprise owned by Chinese interests, was allowed to develop an industrial estate in Guangdong Province.

In turn, Chinese interests are investing in Hong Kong's real estate sector and in joint ventures to produce construction materials in Hong Kong, the largest venture being the one to produce cement, in cooperation with Kaiser Cement of the United States.

Communications and transportation: Plans are afoot to double-track and electrify the Hong Kong-Canton railroad. A multilane highway linking the two cities is already under construction. Regular air, hover-ferry, and passenger-ship connections began with Canton last year, and the frequencies are being increased.

The rail and road services are being tied in with Hong Kong's excellent port facilities. As China lacks a deepwater port, the colony's container terminals -- a new one is being planned -- may well provide shipping facilities for cargo to and from Guangdong Province.