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.