The Recovery of Hong Kong } 583
1994, estimated that Hong Kong supplied 60 percent of China’s total direct
foreign investment between 1979 and 1997.^10 After 1978, Hong Kong quickly
became a preferred channel for third-country foreign investment in China.
Rather than themselves investing directly in China and assuming responsi-
bility for operations there, many third-country investors, including Overseas
Chinese in Southeast Asia, invested in Hong Kong firms, allowing those firms
to supervise operations in China while protecting their investment with Hong
Kong’s British-origin legal system.
After the opening of the Shenzhen Special Economic Zone in 1979, Hong
Kong quickly emerged as one of the PRC’s most important trading partners.
This is illustrated by Figure 22-2. In the decade before reversion, Hong Kong
accounted annually for between 26.9 and 36.3 percent of China’s global mer-
chandise trade, making it by far China’s largest trade partner. Beijing’s
method of counting trade with Hong Kong changed in 1993, with goods
transiting Hong Kong being shifted from “Hong Kong” to another coun-
try of origin.^11 Under the new statistical method, the role of Hong Kong in
China’s trade fell by about half. Even then, during the years 1993 through
1995, Hong Kong still ranked as the PRC’s second largest trading partner,
behind Japan but substantially ahead of the United States. In 1996, with
14.1 percent of China’s total trade, Hong Kong fell behind the United States
to third rank.
As indicated by the result of the altered statistical method in 1993, a very
large percentage of PRC exports to Hong Kong were forwarded on to con-
sumers in other areas—North America, Europe, Southeast Asia, the Middle
East—perhaps after repackaging in Hong Kong and with substantial value
added by Hong Kong’s sophisticated marketing, insurance, advertising, ship-
ping, and logistical services. A large portion of China’s exports reach global
consumers via Hong Kong intermediaries. Many of Hong Kong’s exports to
the PRC are high-tech components to be embedded in products assembled
in the PRC for shipment to third countries, perhaps once again via Hong
Kong. That city also offered a way for the PRC to conduct trade with countries
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996Trade w/
Hong Kong
as % total
PRC trade
26.9% 29.4% 30.9% 35.4% 36.6% 35.1% 16.6% 17.7% 15.9%14.1%
foreign capital actually utilized;
HK as % total
N.A. 30.4% 29.0% 23.6% 24.5% 43.8% 48.5% 45.9% 42.4% 38.1%
FIGU R E 22-2 Hong Kong’s Role in PRC Trade and Foreign Capital Utilization in the Decade
before Reversion
Source: Zhongguo tong ji nianjian (China statistical Almanac), various years.