One obvious need was to step up the colony’s export volume at once. It was in this situation that the “poor relation” in Hong Kong’s economy—its industry—came into its own.
Despite its rapid postwar growth, the colony’s industry had supplied only about ten percent of the products it exported. In simple desperation, the traders invested their Korean war profits in local industry. So also did the transplanted Shanghai industrialists who had lost their factories to the Chinese Communists but had retained their capital and managerial skills. The effect on Hong Kong was basic and far-reaching.
After a two-year period of readjustment, the number of industrial undertakings, or individual registered and recorded manufacturers, increased at the rate of 500 a year. Employment in the industries more than doubled; by the end of 1961, the colony had 6,359 companies with 271,729 workers. The climb continued into 1962.
Local industry, which had once contributed only ten percent of the value of colony exports, contributed more than seventy percent by 1962. Trade had made its comeback by then, but it showed no sign of regaining the dominant position it had occupied until 1952.
Entirely without warning and almost against its will, Hong Kong had become a manufacturing center instead of an entrepôt. New industries had cropped up from nowhere, taken a firm hold and climbed to the most important positions in the colony’s productive economy. A few of the old industries had slumped, but most were expanding with the general prosperity.
During the uneasy two-year period of transition from trade to manufacturing, the colony had to lay down two sets of regulations to stabilize its trade relations with Japan and the United States.
Japanese industry, swiftly reviving during the American Occupation, began pouring cotton yarn and piecegoods, household utensils and metalware into the Hong Kong market. In 1952, Hong Kong imported four times more from Japan than it exported to her. But the colony was less concerned about export-import balances than it was over reducing the Sterling Area’s adverse balance of payments with Japan. Japanese imports were tightly restricted or suspended from early in 1952 until the second half of 1953. Meanwhile, local industries enjoyed a welcome breather from Japanese competition, especially in their home market.
Restoration of trade with the United States was essential. The volume of this trade had taken a steep dive after the U.S. and U.N. embargoes on trade with China, and the United States wanted no Communist products funneled through Hong Kong, nor any Red Chinese raw materials fabricated in the colony. The Hong Kong Commerce and Industry Department and the U.S. Treasury Department finally worked out a solution: the Comprehensive Certificate of Origin, covering every kind of goods that might be suspected of Red Chinese origin. Among these were silk, linen, cotton, jade, furniture, Chinese antiques and handicrafts. Goods of North Korean origin were similarly classified.
In enforcing the Comprehensive Certificate of Origin regulations, the Commerce and Industry Department directly supervises the raw material supply and the finished products of the factories; in some cases, it seals the goods after examination and keeps them under surveillance until they are exported. Severe legal and administrative penalties are slapped on manufacturers or dealers who are caught falsifying a Comprehensive Certificate of Origin. The colony government protects the validity of the certificates to insure trade relations with its biggest customer, and because it gives the colony a monopoly on certain goods for which Red China would otherwise have the market sewed up. The most vociferous critics of the Comprehensive Certificate of Origin are American tourists who recoil from it as if they had been handed two sets of income-tax demands for the same year.
With the road clear for industrial expansion, the response was overwhelming, and more than half the growth came in six light industries. Between 1948 and 1958, the six light-industry groups showed these increases in employment: garment-making, 20,000; metal products, 13,000; cotton spinning, 11,000; cotton weaving, 9,000; plastic wares, 8,000; and rubber footwear, 3,000.