TRADE between Hong Kong and South Korea surged by 30 per cent in the first five months of this year. The boost confirms the territory's status as an important entrepot for Korea-China trade. It also elevates Korea to the position of Hong Kong's sixth-biggest trading partner. Total trade between the two passed the US$5 billion mark in the January-May period. That followed a 16 per cent rise last year which pushed business to a fraction under US$10 billion for the first time. Imports from Korea were largely behind this year's substantial trade increase - zooming by 34 per cent to US$3.9 billion and making Korea the territory's fifth-largest supplier. Hong Kong, in turn, has become Korea's third-biggest export market. Of Korea's exports to Hong Kong - most notably textiles, steel, plastics, chemicals and electronic appliances - 55 per cent is for the territory's domestic market and 45 per cent is re-exported, mostly to China. The imports have left Hong Kong with an annual trade deficit with Korea of about US$5 billion, reports the Hong Kong Trade Development Council (TDC). Reviewing Korea's economy this year, the TDC said: 'After two years of relatively sluggish growth, the Korean economy has entered a period of rapid growth.' Gross National Product (GNP) grew by a 'robust' 8.3 per cent last year. 'This was mainly due to rises in export and investment in plants and equipment. 'Continuing last year's boom, the economy is expected to post a robust 7.3 per cent gain in 1995. Swelling consumer spending and construction investment will be the driving force behind the high growth.' Relations with North Korea are improved and security fears on the divided peninsula have eased with Pyongyang signing a US pact and agreeing to return to the Nuclear Non-proliferation Treaty. The darkest cloud on the horizon now is the prospect of higher inflation. Inflation was kept down to a manageable 5.6 per cent last year but, the TDC said, 'it is likely to be the most serious economic problem this year'. 'A vicious inflationary cycle is expected as the government plans to increase public utility charges and civil servant wages,' the TDC said. Still, Korea's thirst for industrial expansion at home and abroad is essentially continuing unabated. Since diplomatic and trade relations were resumed with China in 1992, the partnership has gone from strength to strength. China is now Korea's third-biggest trading partner. China basically exchanges raw materials (cotton, cement, coal and petroleum) for hi-tech Korean semi-conductors and electronics. Lured by the prospect of cheap labour, Koreans have also become major investors on the mainland. At the last count, there were 1,760 Korean enterprises operational in China, mainly in Shandong. The most popular investments are in labour-intensive manufacturing businesses such as garments, footwear, toys and electronics. Korean firms - in particular the giant trading companies like Samsung, Hyundai, Lucky-Goldstar, Daewoo, Lotte, Kolon and Sunkyong - have also carved a significant presence in Hong Kong. At the end of last year, direct investment by about 350 companies amounted to US$391 million, almost as much as Hong Kong's investment in Korea. Almost half was in the financial sector where banks (there are now no fewer than 22) have been enjoying remarkable growth. Korean businessmen are firmly entrenched in the territory's commercial and social network. There are about 5,700 Koreans here and the community has its own international school.