1939: Hong Kong

The outbreak of war in Europe seemed relatively distant from Hong Kong, for war had already been raging around its borders for many months. On Oct. 21, 1938, Japanese forces, after a whirlwind campaign, had entered the neighboring city of Canton. In the succeeding months, fear of a sudden Japanese attack mounted higher in the British Crown colony. The erection of fortifications was hastened, and the land frontier with Kwangtung province placed in a state of defense. The challenge to British authority grew more acute when, in August 1939, the Japanese bombarded and captured the city of Shumchun on the Hong Kong-Canton Railway, interrupted all traffic on the line, and moved their outposts up to the Hong Kong border in order to cut off all direct commerce with South China.

Trade with Canton naturally dropped rapidly after that city fell to Japan, for the invaders soon won complete control over rail and river communications between the two cities. But since the fall of Shanghai, Hong Kong had become China's principal entrepôt, and the traffic continued by other routes. Coastal steamers carried cargo to and from the treaty ports of Swatow, Amoy and Foochow, the Portuguese colony of Macao, and French Kwangchowan. The great China tea market was transferred from Shanghai to Hong Kong. Because of these developments, Hong Kong's exports of merchandise were as high in the first six months of 1939 as in the same period of the record year 1938, while its imports declined by only 12 per cent.

In the summer, however, conditions changed rapidly for the worse. The Japanese blockade was tightened until the treaty ports were cut off; Chinese currency was sharply depreciated; and the Chungkung Government restricted imports. No basic improvement in trade conditions was expected until the conclusion of the China war. The difficulties for exporters were intensified by a decree of Sept. 9, prohibiting shipments from the colony, without special permission, of all metals and ores, hemp, cotton, peanuts, vegetable oils, petroleum products and a number of other commodities. Thus war, in Europe as well as the Orient, dislocated the trade which is the lifeblood of the colony. The mainstay of its prosperity is now the large number of self-supporting Chinese refugees, who in some quarters are estimated to have increased the population by 25 per cent to a figure of well over 1,000,000. Although the influx has been welcomed for economic reasons, it is scarcely a foundation for stable business development.