Rebuilding Hong Kong's entrepôt economy, 1945-1950

Abstract

After World War II, Hong Kong enjoyed a rapid and almost miraculous economic recovery as an entrepôt, despite unfavourable international trading circumstances and restrictions under the early Bretton Woods era, and economic chaos in China. This thesis examines how Hong Kong was able to overcome the obstacles to its re-emergence as a principal Far Eastern trading hub, with reference to the role of government policies and local markets that emerged spontaneously under the regime of economic controls. The story begins in 1945, when Hong Kong began economic rehabilitation under the interim military government, and ends in 1950, as the Nationalist collapse and subsequent embargoes once again altered Hong Kong’s economic circumstances. Through extensive archival research, this study reveals how Hong Kong was affected by dramatic post-war changes to the international economy, notably commodity shortages, increasing trade restrictions, and a shifting balance in the international monetary system. It then investigates how officials incorporated various illegal economic arrangements into their plans for restarting entrepôt trade as a response to Hong Kong’s predicament, and explores the fragility of this prosperity in the face of diplomatic pressure and the inherent volatility of free markets.

This thesis challenges earlier works that posit state intervention at the centre of recovery. Instead, it argues that official tolerance and support for Hong Kong’s illegal markets are the key to understanding Hong Kong’s rapid recovery as an entrepôt after 1945, as well as its later importance in trans-Pacific economic exchanges. Through examining the reconstruction process, this thesis also sheds light on how peripheral economies survived the post-war economic troubles and inter-state competition for resources. In addition, it problematizes existing literature on the rise of offshore spaces of “archipelago capitalism” by presenting a case of funk-money-fuelled economic growth, driven not by the dynamics of 1950s and 1960s decolonization, but post-war economic survival and the dismantling of informal empire in China. Chapter One introduces studies how Hong Kong’s pre-war trading advantages were eroded in the post-war era. Chapter Two investigates how Hong Kong overcame common post-war issues through ad-hoc arrangements and de-monetization, and designed policies for trade promotion around the illegal exchange market. It also examines how these arrangements helped Hong Kong exploit the rigidity of the Bretton Woods system and China’s economic crisis to benefit its entrepôt trade. Chapter Three explores the defence and collapse of the Hong Kong’s funk-money-fuelled economic success. It covers the government’s fierce diplomatic battles with Nationalist China and Britain over its conduct, as well as its declining control over local free markets. It also shows how Hong Kong in 1949 inflicted on itself a major economic crisis, as it retreated from the pro-market policies that made it successful. Overall, this thesis draws attention to the important impact and consequences of official economic policy in the late 1940s, an otherwise often-neglected period in Hong Kong’s history.