Hong Kong Report for the Year 1967/Chapter 4

Hong Kong is an industrial territory with an economy based on exports rather than on its domestic market. At the same time it remains basically a free port. The change from dependence upon entrepôt trade has taken place over the past 18 years, although before that industry was not entirely new to Hong Kong. By the turn of the century, shipbuilding and shipbreaking industries had developed as a natural extension of port activities. Some light industries were established before 1939. But industrial development on a significant scale did not take place until political changes in China, followed by the Korean war and consequent trade restrictions, signalled the end of the entrepôt trade as a basis for the economy. The simultaneous arrival of refugees from the mainland brought in additional manpower and in some cases technical knowledge and capital. As a result, while the entrepôt trade declined, there was an increase in the manufacture and export of cotton textiles—a development which proved to be the foundation for subsequent light industrial expansion.

United States regulations prohibiting the purchase of Chinese manufactured goods provided another stimulus to the manufacture of certain categories of products in Hong Kong for the American market. Certification procedures designed by the Commerce and Industry Department, in association with the United States authorities, were introduced to prevent the substitution of Chinese goods. This protected the interests of local manufacturers and permitted exports of Hong Kong products to the American market. Restrictions in the trade in cotton textiles between Japan and the United States in the late 1950's caused American buyers to turn to Hong Kong as an alternative source of supply. Since then the United States has become the largest market for Hong Kong products, particularly for textiles and garments.

Hong Kong's industrial economy thus derives from various circumstances, few of which originally appeared favourable. But with these circumstances—all of them outside Hong Kong's control and some of them fortuitous—must also be considered the political stability of the territory and its encouragement of enterprise. There has been a steadfast policy of preserving free competition, of generally refusing to accept demands for protection of particular industries or demands for retaliation against other countries' restrictive actions. Widespread skill in merchandising techniques inherited from the entrepôt era, plus highly developed banking, insurance and shipping systems, have helped to make this policy successful. For Hong Kong the industries likely to survive and prosper are those whose products can either be exported without subsidy or be sold in the domestic market without protection. Hong Kong has therefore remained true to the traditions established when it was an entrepôt, with no tariffs and few restrictions on the entry of goods from any quarter of the globe.

In matters affecting internal and external trade, the Director of Commerce and Industry is assisted by advice from the Trade and Industry Advisory Board. This is a body of unofficial senior representatives of commerce, industry, banking, etc, nominated by the Governor, of which the director is chairman. It meets regularly at least once a month. A more specialized board, the Cotton Advisory Board, first appointed in 1961, is consulted on matters affecting the cotton textile industry.

During the year, industry has had to accept the disruptions caused by rioting, water shortages, reduced public transport and the devaluation of sterling. That it has managed to meet all these difficulties and still achieve a 17 per cent increase in the value of domestic exports during 1967 shows the basic strength of the economy and augurs well for the future.

Industry
The general facility with which industry may be established and conducted in Hong Kong has attracted investors. Most industrialists are Hong Kong residents of Chinese race, and the greater part of their capital resources are self-generated. In recent years, however, overseas interests–in particular American, Australian, British and Japanese–have increasingly entered into licensing arrangements with Hong Kong firms and into outer forms of industrial co-operation. The variety of goods produced in Hong Kong is now considerable. In general, while heavy industry such as shipbuilding and steel rolling continues to be important, Hong Kong is best known for the competitive price and range of its light industrial products and their rapidly improving quality.

Industrial Productivity
The problem of improving industrial productivity in Hong Kong is one of concern to the government and to private enterprise. During the year, a statutory Productivity Council and a Productivity Centre were established. Legislation to provide for the Council was introduced in December 1966, and it was brought into being in January 1967, replacing a provisional council which had been working since 1965. The council comprises a chairman and 20 members, all appointed by the Governor, of whom 10 represent management, labour, academic and professional interests. The other 10 represent government departments closely associated with productivity matters.

A management consultant was appointed early in the year to head the new Productivity Centre. Internal training courses were conducted to prepare the centre's own staff to implement an integrated programme. Preparations were also underway to recruit international experts to assist the centre in training consultants who would offer services to industry.

A pilot-training centre was opened in September. It includes a reference library and lecture rooms fitted with the latest audiovisual equipment. One of the more important events at the centre was an export marketing training course, implemented at the request of the Asian Productivity Organization, with participants from APO member countries.

Hong Kong is one of the 12 member countries of the Asian Productivity Organization. The Colony was represented at the seventh Workshop Meeting of directors of national productivity centres, held in Tokyo in January, and at the eighth Governing Body Meeting in Seoul in April. As in previous years, a considerable number of Hong Kong nominees participated during the year in study missions, seminars, symposia and training courses in Asian countries. Hong Kong acted as host to a special meeting of APO member countries in October to lay down guide-lines for a five-year training and development programme.

Textiles
The textile industry not only dominates Hong Kong's economy, accounting for 49 per cent of its domestic exports and employing 40 per cent of its industrial labour force, but is also a significant factor in international trade in textiles (see International Economic Relations, below). In all sectors, the manufacture and processing of cotton goods predominate. The cotton spinning mills, operating some 767,000 spindles, are among the most up-to-date in the world. Cotton yarn counts range from 10's to 60's carded and combed, in single or multiple threads. Production of all counts in 1967 was estimated at approximately 295 million pounds, the greater part of which was consumed by local weavers. In the piecegoods weaving section, which has 22,700 looms, grey cotton drill, canvas, shirting, poplins, ginghams and other bleached and dyed cloth and prints are the main items. Production of cotton piecegoods in 1967 was estimated to be approximately 716 million square yards. Much of this was exported as cloth, but there is an increasing tendency for garment manufacturers to use domestic materials which was encouraged this year by the reduction in supplies of grey cloth from China.

The use of fibres other than cotton, and new processes in the finishing and garment industries, are assuming growing significance. Nine textile concerns are producing polyester-cotton and polyester-viscose yarn for weaving into shirting and other fabrics for which there is now a more rapid growth in demand than for comparable cotton products. The demand for woollen knitwear has continued to grow. The production of the woollen and worsted spinning industry goes mostly to the domestic knitting industry, although some is woven into cloth. Other woven products include silk and rayon brocade of traditional Chinese design, tapes, military webbing, lace, mosquito netting, carpets and rugs. Significant developments in the dyeing, printing and finishing sector were multi-colour screen and roller printing, pre-shrinking and permanent-pressing by several processes under licence, and polymerizing for the production of drip-dry fabrics.

The manufacture of garments remains the largest sector within the industry, employing 61,500 workers. A wide range and variety of clothing, from high fashion dresses to cotton singlets, is produced for export all over the world. Embroidered blouses, beaded or sequinned woollen cardigans, silk and brocade, and evening coats have worldwide popularity while, in conformity with world trends, demand has increased significantly for permanent press garments. Custom and mail order tailoring, principally of men's suits, has developed rapidly in recent years as an important branch of industry. Knitting mills produce towels, tee-shirts, underwear and nightwear, swimsuits, gloves, socks and stockings in cotton, silk, wool and other fabrics. From a total of $862 million in 1961, the value of exports of clothing has risen to $2,317 million in 1967, produced by some 1,170 factories.

Other Light Industries
In the ever-widening range of light industry the most prominent, after textiles, is the manufacture of plastic articles. Skill in the cutting of moulds and dies, together with the ability to meet short orders, have resulted in increased exports of a very wide variety of products. These include artificial flowers, toys and dolls, household ware, household furniture of polypropylene, and PVC sheeting and coated fabrics. The industry manufactured exports worth some $833 million during the year.

There has been spectacular growth in the electronics industry. The manufacture or assembly of transistor radios began only in 1959, but since then exports of transistor radios have increased to reach a total of 11.7 million sets worth $210 million in 1967. The industry exports its products all over the world with its principal markets in the United Kingdom and the United States. The manufacture of electronic components is also making rapid progress. A number of leading American electronic manufacturers have established subsidiaries in Hong Kong. Silicon transistors and diodes, condensers, transformers, capacitors, resistors, loudspeakers and printed circuit boards are now produced and exported in substantial quantities. Other electronic products include television sets and tuners, transceivers and computer memory cores.

While the growth of the plastics and electronics industries illustrate how quickly Hong Kong can react to export opportunities, older established light industries of many varieties have continued to develop and expand. They include the manufacture of air-conditioners, aluminiumware, clocks and watches, cordage, electrical appliances and equipment, enamelware, food and beverages, footwear, light metal products—especially stainless steel ware—optical and photographic equipment, paint, vacuum flasks, furniture and furnishings. The manufacture of hair wigs has developed dramatically during the last few years, the principal market being the United States. Exports during 1967 were valued at $197 million. Some 9,620 workers are employed in their manufacture.

Heavy Industries
Hong Kong's major shipyards are equipped to build ocean-going vessels of more than 10,000 tons deadweight and also to construct and install engines. At the other end of the scale, pleasure-craft and utility vessels of all kinds, including ocean-going yachts, vehicle and passenger ferries, sloops, cruisers, speedboats of wood and fibre glass, yawls and steel lighters are regularly produced for local use and for export. The traditional Chinese junk, slightly modified from the basic design used for many centuries, has also been exported as a comfortable and stable pleasure-craft.

Activity in the shipbreaking industry has declined considerably since 1961 and the tonnage of ships broken up during the year dropped again. Steel rolling mills, which used to depend primarily on the scrap obtained from ship breaking, are now more dependent upon imported steel billets and locally collected scrap. These mills produce mild steel bars, window sections, angles and channels and other metal products used in building construction. Although some rods and bars are shipped abroad, principally to South-East Asian countries, the steel mills rely heavily on domestic sales which have suffered from the recent decline in the building industry. Several rolling mills produce brass and aluminium sheets and circles, most of which are used for the manufacture of consumer goods. Recently the industry has had to face severe competition from imported bars and rods selling at lower prices and, as a result, many mills are operating at reducing capacity. The industry is now engaged in a large scale modernization programme involving heavy capital investment in new sites and plant.

Hong Kong's separation from its principal markets and lack of indigenous raw materials are among the factors which have produced a concentration of resources on light industry while heavy industry has developed only where a domestic market was available. Two relatively new industrial ventures illustrate this point. The demands of the Hong Kong construction industry have resulted in the establishment of one factory to manufacture spiral welded pipes of all dimensions, and another to produce extruded aluminium fittings and sections.

In similar fashion, the expansion of light industry has stimulated the manufacture of machinery and parts. Hong Kong-made machinery, built originally for domestic industry, is now exported to many overseas markets. Of particular importance are plastic blow moulding and injection moulding machines, power presses, lathes and planing machines.

Aircraft engineering is another important industry; one large establishment provides maintenance and repair facilities for most airlines using Hong Kong Airport. Facilities are available for complete airframe and engine overhaul, and work has been received from countries as far afield as Australia and Canada. Local manufactures can produce most of Hong Kong's requirement for cement, most of the raw materials being imported. A new cement factory was opened in October.

Land for Industry
Government land development programmes include the zoning of land for industrial use. Large-scale reclamation schemes are being carried out at several places. Reclamation at Kwum Tongm which began in 1955, is now complete. The scheme provided 641 acres of which 154 are solely for industrial use. At the end of the year 503 factories were already operating, employing 48,445 workers or over 12 per cent of Hong Kong's industrial work force. Another major development scheme is in progress at Kwai Chung and many new factories are already in operation there. Long-term development plans of two new towns, Castle Peak and Sha Tin, have been approved in principle. The opening, in November, of a new road to Sha Tin, passing through the Lion Rock Tunnel, should influence development in this area.

In the development areas of Kwun Tong, the Tsuen Wan complex, and Sam Ka Tsuen, purchasers of industrial land leases can pay by instalments over 20 years. Purchasers of industrial land elsewhere in the Colony can pay in four equal interest-free instalments, spread over two years. During 1967, there was little demand for land for industrial development and only seven industrial sites were auctioned.

There is a considerable surplus of flatted factory space for small scale industry. This has reduced the demand for industrial land.

External Trade
The value of Hong Kong's external trade in 1967 was maintained at a high level despite the disturbances described in Chapter I. The combined value of imports, exports and re-exports of merchandise trade reached $19,230 million. This was due to substantial rises in domestic exports and re-exports of 17 per cent and 14 per cent respectively. Cargo tonnage by all means of transport totalled 11,457,812 tons. Trade statistics, including a breakdown by countries and commodities and comparisons with previous years, are contained in Appendices XV to XXI.

Imports were valued at $10,449 million. Although domestic supplies of agricultural produce and fish are substantial, most of Hong Kong's foodstuffs have to be imported, and food was the principal import, valued at $2,329 million, representing 22 per cent of all imports. The chief items of edible imports were live animals, rice and other cereals, fruits and vegetables, dairy products and eggs, and fish and fish preparations. Raw materials and semi-manufactured goods for industry included textile fibres and yarns, base metals and plastic moulding materials. Capital goods imported included machinery and transport equipment. Mineral fuels and lubricants were also imported in large quantities.

The sources of imports are determined by proximity, prices, speed of delivery and by traditional trade relationships. China remained Hong Kong's principal supplier, providing 22 per cent of all imports, and 47 per cent of all food imports, despite a considerable reduction during the months from June to September, inclusive. Other items imported from China included textile fabrics, cement, paper, clothing and base metals most of which showed a decline. Imports from Japan, the second largest supplier, accounted for 19 per cent of imports from all sources. Of imports from Japan 34 per cent were textile yarn and fabrics; the rest were made-up of base metals, electric apparatus and appliances, chemicals and miscellaneous manufactured articles. Imports from the United States registered an increase of $321 million or 29 per cent. The principal imports from the United States were raw cotton, tobacco, machinery, fruits, plastic materials and medicinal and pharmaceutical products. Imports from the United Kingdom showed a slight increase and were mainly machinery, motor vehicles and textile fabrics. The new valuation of the Hong Kong dollar, in November, is not likely to alter this basic pattern.

The value of domestic exports reached a total of $6,700 million, an increase of 17 per cent over the previous year. Products of the textile and garment manufacturing industries accounted for 49 per cent by value, and miscellaneous manufactured articles, mainly plastic goods and wigs, made up a further 22 per cent. Other light industrial products such as electric apparatus and appliances, footwear, and manufactures of metals were also important exports.

The direction of Hong Kong's export trade is influenced by such factors as the advantages of preference in Britain and several smaller Commonwealth markets, and economic conditions and commercial policies in overseas markets. During the year 54 per cent of all domestic exports by value went to two markets—the United States and the United Kingdom, in a ratio roughly of two to one. The United States, remaining the largest market, took 37 per cent by value and increased her purchases by $468 million or 23 per cent. The value of all goods sent to the United Kingdom was $1,147 million, 16 per cent of all domestic exports. The Federal Republic of Germany, which remained the third largest market, purchased Hong Kong manufactures worth $371 million during the year. Other growing markets of importance included Canada, Japan and Australia, but domestic exports now go to practically every country in the world.

The entrepôt trade has sustained its role in external commerce. The value of re-exports in 1967 totaled $2,081 million, an increase of 14 per cent over 1966. This was 24 per cent of the total combined value of exports of Hong Kong manufactures and re-exports of imported goods. During 1967, Indonesia overtook Japan and became the most important re-export market. Singapore took third place, followed by the United States, Belgium, Macau and Taiwan. The principal commodities in the re-export trade were textile fabrics, diamonds, medicinal and pharmaceutical products, and animal and vegetable crude materials.

Trade Promotion
This was the first full working year of the newly formed Trade Development Council. Established as a statutory corporation under an independent chairman, it is composed of two representatives each from the Hong Kong General Chamber of Commerce, Federation of Hong Kong Industries and the Chinese Manufacturers' Association; the chairman of the Hong Kong Tourist Association and the Exchange Banks Association; two senior government officials—the Director of Commerce and Industry and the Director of Information Services; and four members appointed by name. The council has a permanent secretariat under an executive director and it is financed by subventions from the government, roughly equivalent to the existing support from general revenue for trade promotion, plus a levy on the value of trade imposed on the commercial and industrial community. Its head office is in the ocean terminal, Kowloon, where it maintains a permanent display of Hong Kong products.

The programme of active promotion during the year concentrated more on selling missions than attendance at fairs. The first mission went to Scandinavia in April, and one went to Spain in May. These markets have shown definite increases in trade, particularly Norway, Denmark and Sweden, and members of the missions reported good business. In both Spain and Scandinavia the council has appointed public relations consultants to keep Hong Kong's name before the public. In June, in an attempt to diversify Hong Kong's trade with Austria and Switzerland, a mission was sent to these countries.

A mission to East Africa in September had a novel approach. An exhibition of products was housed in a mobile display area designed by the council's design team and constructed in Hong Kong. It was fitted on a standard trailer chassis and travelled widely in Tanzania, Uganda and Kenya, attracting a great deal of attention with resulting excellent business.

A businessman's mission to Canada, in September, was organized by the Hong Kong General Chamber of Commerce on the council's behalf. It visited all the main towns and a large volume of business was reported. The last mission of the year was to Australia when the delegates travelled from Brisbane to Perth with satisfactory results. Before each mission, painstaking research was conducted to ensure that the right products were being taken into the markets.

At the London offices of the council several specialized displays were held which attracted buyers from Europe and the United Kingdom. In America, the now familiar participation in Department Stores Festivals took place with an enlarged and varied team visiting stores, mainly in the Middle West.

In efforts to plan better services for the exporter and exporting manufacturer the council organized the collection, analysis and distribution of market information, provided expert guidance and assistance to local firms and developed means of contact with overseas buyers. An expert from the International Marketing Institute in the United States visited Hong Kong to review and advise on information systems.

The council expanded its Brussels office and the office in Sydney was moved to larger premises. After the disturbances each office undertook a special campaign to help re-establish confidence in Hong Kong as a viable trading partner, with considerable success. The Brussels office covered most of Europe in a particularly intensive campaign of lectures, articles and booklets explaining the Hong Kong situation in sober, factual terms.

A number of publications were produced during the year. The Hong Kong Trade Bulletin, with a circulation of nearly 25,000 copies a month, was replaced in October by a more sophisticated journal called Hong Kong Enterprise. This is distributed free of charge to businessmen in all parts of the world. A number of smaller booklets in appropriate languages were distributed—usually during an overseas promotion. Several of these were produced in conjunction with the Information Services Department.

The council twice collaborated with local organizations. From October 30 to November 5, the Federation of Hong Kong Industries organized a Festival of Fashions and a Hong Kong Week. The council provided funds and some assistance, although the federation undertook all the organization. Hong Kong Week was intended to show both the overseas buyer and the people of Hong Kong the excellence of the Colony's industrial products and to encourage a greater exploitation of the local market. In December the council took part, for the first time, in the Chinese Manufacturers' Association's 25th Annual Exhibition of Hong Kong products by erecting a display centre. The association provided the exhibits and helped man the stand.

The progress of the Hong Kong Export Credit Insurance Corporation, since its establishment in 1966, proved that there was a real need for this type of government-guaranteed insurance. The corporation provides government-backed insurance at low premium rates against those risks which are not normally insurable commercially, such as foreign governments' laws, orders or other actions which prevent the successful conclusion of an export transaction, and credit risks. Such insurance, which is already provided in 24 other trading countries, will assist exporters to expand existing business and to find new markets for their goods. Although its policies must be approved by the government, which has provided the initial capital of $10 million, the corporation, in the person of a commissioner, has wide freedom to grant or refuse individual contracts. It is required to operate on a break-even policy and is expected to earn sufficient premium income to cover the payment of claims and other outgoings. The face-value of policies issued is in the region of $600 million and the maximum liability assumed by the corporation is such that the original limit of $300 million had to be increased by the Legislative Council on August 23, to $500 million. The type of policy most in demand is the Comprehensive Shipments Policy which protects the exporter/manufacturer against political, economic and del credere risks from date of shipment to date of payment. Interest has also been shown in other types of cover such as re-exports, external trade and capital goods. Premium income now more than covers overheads; but the future pattern of claims remains to be seen and will determine how soon the corporation can be truly self-supporting.

International Economic Relations
As the United Kingdom has acceded to the General Agreement on Tariffs and Trade on behalf of Hong Kong, the Colony's exports attract most-favoured-nation tariff treatment in the majority of its overseas markets and are protected from discriminatory import restrictions. Nevertheless, difficulties do occur from time to time. During the past year, Hong Kong made representations, outside the field of cotton textiles which are covered by their own particular arrangements, to the governments of Algeria, Austria, France and Nigeria. In addition, Hong Kong experienced discriminatory barriers to trade imposed by the Republic of Ireland, which is not yet a contracting party to the GATT.

Hong Kong continued to follow, with considerable interest, further developments designed to bring about the free movement of goods within the European Economic Community. As the community already provides a market worth about $600 million annually, Hong Kong is particularly concerned that the process of creating the Common Market should not result in limitations on the community's external trade. In May, Britain again formally applied to join the community. As this application could have far-reaching effects on Hong Kong's external trade, the government analyzed the possible consequences in close collaboration with Hong Kong trade and industry, and held talks with London officials during July and October.

The year has been one of intense activity in the sphere of multilateral commercial policy. A limited scheme of preferences for imports from less-developed countries, including Hong Kong, was introduced by Australia in 1966 under a waiver granted by the Contracting Parties to the GATT and this scheme was extended in scope after the first year of operation. In spite of this initiative, a general scheme of preferential entry to the markets of the developed countries of Western Europe and North America for exports of less developed countries has yet to be agreed. Some progress in this regard may be realized at the Second United Nations Conference on Trade and Development scheduled to be convened in New Delhi in February 1968.

In the context of the GATT, the sixth round of trade negotiations, commonly known as the Kennedy Round, drew to a successful conclusion in June 1967, after four years. The results of the negotiations included extensive tariff reductions by the participating countries. These reductions are generally to be implemented in equal stages over five years. Other achievements of the Kennedy Round included modification or removal of certain non-tariff barriers to trade. All these concessions are to be applied on a most-favoured-nation basis.

In the textiles sector, the GATT Long-Term Arrangement regarding international trade in cotton textiles, which reached the end of its fifth and final year on September 30, was renewed for another three years to 1970 after considerable bilateral and multilateral discussions in which Hong Kong was closely involved. In the course of the fifth year of the arrangement, Hong Kong's exports of cotton textiles to the United States, Canada, Norway, the Federal Republic of Germany and the Benelux countries were under restraint, to a greater or lesser extent, as a result of agreements reached in accordance with the provisions of the arrangement.

An understanding was reached in 1966, at the conclusion of the five-year Hong Kong/United States bilateral agreement on cotton textiles, that a second stage of negotiations would be held once the extension of the Long-Term Arrangement was assured. It transpired, however, that these negotiations were wider in scope than originally envisaged, as a result of a problem of definition of cotton textiles which had become significant in trade terms from late 1966. Negotiations in Washington DC, in April, resulted in the extension, from June 1, of the coverage of the restraint agreement to certain fabrics of cotton and man-made fibre not hitherto regarded as cotton textiles by Hong Kong. At the same time, it was agreed there would be an annual increase of 15 million square yards in the aggregate limit and additional flexibility provisions.

Export of cotton fabrics to Canada were restrained at an annual limit of 11.09 million square yards under a three-year agreement, the first year of which ended on September 30, 1967. Exports of certain items of cotton apparel, which were also restrained during the year ending on that date, were the subject of a new agreement signed in August for the year commencing October 1. The previously restrained knitted shirts category was liberalized and the remaining four categories—woven shirts, blouses, nightwear and slacks—were restrained at the same limits as for 1966–7.

Following discussions in Ottawa with the Canadian authorities, Hong Kong made a unilateral undertaking to restrain exports of certain garments made from polyester or polyester/cotton blends in the year commencing October 1. The garments in question were shirts, blouses and trousers and the limits were set at 75,000, 40,000 and 55,000 dozens respectively.

An export restraint agreement with the Federal Republic of Germany covering a range of cotton woven textiles products, including nightwear already under limitation, was signed in January. The agreement runs from November 1, 1966 to December 31, 1969, the aggregate limit for the first restraint period of 14 months being 77 million square yards; the second and the third restraint periods cover the calendar years 1968 and 1969 respectively. The flexibility provisions include an annual growth rate, swing, and a measure of anticipation and carryover.

In May, agreement was reached on the extension of the restraint on the export of Hong Kong cotton woven nightwear to Norway while, at the same time, the Norwegian government agreed to the liberalization of cotton woven shirts. The new agreement in respect of nightwear runs for three 12-month periods from October 1, 1967 to September 30, 1970, the respective limits being 24,000 dozens, 25,000 dozens and 26,000 dozens.

Also in May, the Benelux Governments requested consultations with a view to the conclusion of a restraint agreement on the export of six categories of cotton woven textile products, including shirts already under restraint, from Hong Kong. Negotiations took place in July and the resulting agreement was embodied in an undertaking by the Hong Kong Government to exercise restraint during the consecutive periods July 18 – September 30, 1967 and October 1, 1967 – September 30, 1968. The aggregate limit for the latter period is equivalent to 8.2 million square yards and there is provision for five per cent swing between categories.

Outside the ambit of the Long-Term Agreement, Hong Kong's exports to Britain of cotton yarn, cotton woven piecegoods, clothing and made-up articles are limited under an agreement reached in 1966. This agreement, which runs for five years, provides in 1967 for the export of 6.36 million pounds of cotton yarn and the equivalent of 189.23 million square yards in the piecegoods, clothing and made-ups groups combined.

The year also saw the revision and extension, to the end of 1969, of the two-year agreement reached with the Federal Republic of Germany, in February 1966, on Hong Kong's exports of woollen, knitted outerwear. The revised annual limits for the three years 1967, 1968 and 1969 are 825,000, 875,000 and 925,000 dozens respectively. The agreement provides for three per cent carryover per annum.

Documentation of Exports
Import and export licensing formalities are kept to a minimum consistent with Hong Kong's international obligations and the spirit of free trade. Complex procedures have had to be established, however, to ensure that Hong Kong's responsibilities in respect of restraints on cotton textile exports are discharged.

With the growth in exports of Hong Kong products in absolute and relative terms, certification of Hong Kong origin has become vitally important to the economy. Since Hong Kong has practically no raw materials, the origin of manufactured goods is established by the nature of the work carried out in Hong Kong factories in transforming imported raw materials into a wide range of what are essentially consumer goods. The Commerce and Industry Department is responsible for ensuring that Hong Kong certificates of origin remain fully acceptable to overseas customs authorities and, to this end, the department has established a close system of liaison in certification matters with the four non-government issuing bodies approved for this purpose—the Hong Kong General Chamber of Commerce, the Indian Chamber of Commerce, the Federation of Hong Kong Industries and the Chinese Manufacturers' Association of Hong Kong. During the year, exports of goods certified by the Commerce and Industry Department to be of Hong Kong origin were valued at $3,898.2 million.

The department also issues certificates to enable Hong Kong products to claim preferential rates of duty on entry into Britain and a number of other Commonwealth territories which grant preference to Hong Kong. Commonwealth preference certificates are issued against, either legal undertakings by manufacturers to use Commonwealth raw materials, or detailed cost statements for each type of product, prepared by public accountants approved for the purpose. Exports covered by Commonwealth preference certificates were valued at $1,204.8 million.

United States law prohibits the information of certain classes of goods presumed to originate from the People's Republic of China, North Korea or North Vietnam, unless evidence is produced to the contrary. As Hong Kong manufacturers produce many goods in these categories, the department issues comprehensive certificates of origin under special certification procedures agreed with the United States authorities. During the year, goods valued at $981.4 million were exported to the United States and its dependencies under comprehensive certificates of origin. The total value of Hong Kong products certified under departmental certification procedures in 1967 was $3,897.2 million, representing over 58 per cent of total exports of locally manufactured products.

Administration
With the establishment, in 1966, of the Trade Development Council as a statutory organization responsible for Hong Kong's trade promotion, the Commerce and Industry Department is now concerned with all other matters affecting trade and industry except labour and banking. These include overseas commercial relations, industrial development, certification, trade controls. Until the new Census and Statistics Department was established in December 1967, it was also concerned with statistics.

There are two Commercial Relations Divisions whose spheres of responsibility are divided on a geographical basis. One is concerned with Europe and the other with the rest of the world. They keep watch on commercial measures adopted by other countries which may affect Hong Kong, and study the activities of international organizations concerned with trade. They are also responsible for preparing for negotiations with trading partners concerning textiles or other products, and for enforcing the provisions of any agreement. Between them, they deal with the calculation and allocation of quotas for markets restricted under the operation of the Long-Term Agreement regarding international trade in cotton textiles. The divisions also provide secretariats for the Cotton Advisory Board and the Trade and Industry Advisory Board. They are in close and constant touch with the Trade Development Council and the Export Credit Insurance Corporation.

During the year two new overseas offices were opened in Washington and Geneva, bringing the total for which the Commerce and Industry Department is responsible to four. The other offices are in London and Brussels.

The Industry Division provides a liaison between industry and other government departments, answers industrial enquiries from overseas and deals with specific industrial problems. It also operates certificate of origin and Commonwealth preference procedures. An industry inspection service has been established to enforce these procedures through the regular inspection of factories and goods and the prosecution of those suspected of contravening the regulations.

The Controls Division deals with trade licensing (other than for textiles) with dutiable commodities and with the control of certain reserved commodities, including rice. It administers the Preventive Service, a uniformed and disciplined organization whose role in revenue protection and the control of narcotics traffic is described in Chapter 10. The Chief Preventive Officer commands the service which has an establishment of seven gazetted officers, 288 inspectors and 548 rank and file.

The Statistical Branch publishes monthly commodity-by-country trade statistics, compiled from declarations filed with the department by importers and exporters. It also maintains a consumer price index and provides general statistical services for other government departments. The new Census and Statistics Department has taken over these duties for the future.

Trade and Industrial Organizations
The Hong Kong General Chamber of Commerce is the oldest trade association in the Colony. Founded in 1861, it now has a membership of over 1,300, representing all branches of commerce and industry. Membership is open to firms and people of all races and nationalities interested in the trade of Hong Kong. The chamber is represented on a number of important government boards and committees. It is an organizing member of the British National Committee of the International Chambers of Commerce, and a member of the Federation of Commonwealth Chambers of Commerce. Other chambers and trade associations in the colony include the Indian Chamber of Commerce, the Chinese General Chamber of Commerce and the Hong Kong Exporters' Association. The Exporters' Association has 73 members who are representative of more than one third of the Colony's range of exports. It works in consultation with other commercial and official bodies for the promotion and protection of Hong Kong's export trade.

The Federation of Hong Kong Industries, established by ordinance in 1960, promotes the interests of Hong Kong industry as a whole, and its membership represents all industries, many nationalities and all sizes of enterprise. In the promotion of internationally accepted standards for locally manufactured goods, the federation is responsible for a textile testing service, launched in consultation with the Retail Trading Standards Association in Britain. It is also studying ways and means to promote the adoption of standards of other industrially advanced countries. In 1966, the federation concluded an agreement with the Federation of Swiss Watch Manufacturers for their 'tested quality' label to be made available to Hong Kong watchcase manufacturers whose products measure up to their standards. The federation has also been engaged in negotiations with the International Wool Secretariat to enable Hong Kong manufacturers, whose products meet the required standard, to use the world-known 'Woolmark'. During the year the federation began to operate a testing and certification service for lead content of paint and in plastic materials and this service is expected to expand to include all types of chemical testing.

Established in 1934, the Chinese Manufacturers' Association of Hong Kong has a membership of over 1,400 factories. Member firms represent factories of all sizes and industries. The Association has played an important role in the industrial development of Hong Kong.

Trade Marks and Patents
Trade Marks are registered under the Trade Marks Ordinance, which is based on the Trade Marks Act 1938 of the United Kingdom. The procedure is laid down in the Trade Marks Rules, and the prescribed forms may be obtained, free of charge, from the Registrar of Trade Marks, Registrar General's Department. Every mark, even if already registered in the United Kingdom or any other country, must satisfy all the requirements of the Hong Kong Trade Marks Ordinance before it may be accepted for registration. During the year 1,887 applications were received and 1,590 (including many made in previous years) were accepted and allowed to proceed to advertisement. A total of 1,560 marks were registered, the principal countries of origin being:

The total number of marks on the Register at December 31, 1967 was 21,879.

Hong Kong law does not provide for the original grant of patents, but the grantee of a United Kingdom patent may, within five years from the date of its issue, apply to have it registered in Hong Kong under the Registration of United Kingdom Patents Ordinance. Registration confers the same rights as though the patent had been issued in the United Kingdom with an extension to Hong Kong. Continuing the steadily rising trend of recent years, a record number of 371 patents were registered during the year, an increase of 52 over the previous year.

Companies
The Companies Registry keeps records of all companies incorporated in Hong Kong and also of all foreign corporations which have established a place of business in the Colony. Local companies are incorporated under the Companies Ordinance, which is based on the (now superseded) Companies Act 1929 of Great Britain. On incorporation, a company pays a registration fee of $100 plus $2 for every $1,000 of nominal capital. In 1967, 1,239 new companies were incorporated, 145 less than the total incorporated in 1966 due no doubt to the adverse effect of the disturbances. The nominal capital of new companies registered during 1967 totalled $458,521,990, 18 per cent less than the corresponding figure for the previous year. Of the new companies, seven had a nominal share capital of $5 million or more. At the end of the year there were 11,631 local companies on the register compared with 10,646 on December 31, 1966.

Companies incorporated outside Hong Kong are required to register certain documents with the Companies Registry within one month of establishing a place of business in the Colony. Only small filing fees are payable in such cases. During the year 44 such companies were registered and 33 ceased to operate. By the end of the year there were 599 companies registered from 39 countries including 149 from the United States, 98 from the United Kingdom and 59 from Japan. Usually for tax reasons, many non-local companies incorporate a subsidiary in Hong Kong in preference to operating a branch office.

All insurance companies wishing to transact life, fire or marine insurance business in Hong Kong must comply with the provisions of the Life Insurance Companies Ordinance or the Fire and Marine Insurance Companies Deposit Ordinance, respectively. In addition to the filing of annual accounts, these ordinances require deposits to be made with the Registrar of Companies, unless the company qualifies for exemption by complying with the Insurance Companies Act 1958 (as amended by the Companies Act 1967) in Great Britain, or–in the case of fire and marine insurance–by maintaining adequate deposits elsewhere in the Commonwealth. There are, altogether 204 insurance companies, including 49 local companies, transacting such business in Hong Kong. The approval of the Governor in Council must be obtained for transacting motor vehicle third-party insurance business.

The Companies Registry also deals with the incorporation of trustees under the Registered Trustees Incorporation Ordinance, and with the registration of limited partnerships, Chinese partnerships and money-lenders.

Bankruptcies and Liquidations
In Hong Kong the number of business failures in which creditors resort to formal insolvency proceedings in court is always comparatively small in relation to the total number of businesses closing down.