Things appear to be looking up for Hong Kong. The economy has
made it through a difficult two and a half years and a string of good news in November
shows there is light at the end of the economic tunnel.
This was the overall picture Hong Kong SAR
Chief Executive Mr Tung Chee Hwa painted in his opening speech to a full house at the
Chamber's sixth annual Business Summit on Dec. 2.
Speaking off the cuff, the Chief Executive
cautioned that while the good times look to be returning, Hong Kong still faces many
challenges along this road to recovery.
"Being optimistic is not really my
nature," he said. "As we move forward, we need to remind ourselves that
difficulties are there so that we don't get carried away."
Elements which might slow Hong Kong's
recovery include the tentative recovery of the Japanese economy. The strengthening of the
yen may impede Japan's economic growth and ultimately stall its performance, he said.
Also, the appetite for private investment in Hong Kong remains low, and the loan demand
for 17 months in a row has been negative. "Obviously there are worries for us all
here in Hong Kong, but as the economy continues to recover, all this will begin to
change," he said.
Taking stock of past events, Mr Tung said
that the Asian crisis badly affected Hong Kong's vital industries. Also, a dive in the
property market dragged with it consumer confidence and pushed up unemployment, creating a
vicious cycle. But the crisis did bring certain industries here back down to earth.
"A bubble economy did exist in Hong
Kong for some time. Our property prices were very high and our salaries were among the
highest in the world. Without the Asian financial turmoil the adjustment would have come
anyway. The Asian crisis accelerated this process of adjustment," he said.
To stop this correction spiralling out of
control, the Government cut taxes, froze interest rates and increased capital expenditure
with the aim of putting money in the pockets of consumers. Some decisions, such as
entering the stock market, were difficult for the Government to make, but necessary, he
said.
Also, long-term strategies the Government
set in motion years ago are now starting to be felt. The Disney deal, Tracker Fund, Hong
Kong's cyber port and science park are all long-term strategies designed to elevate
confidence in the economy and strengthen Hong Kong's position as a financial centre, he
said.
The positive effects these projects are
creating, coupled with an economic growth rate in the 3rd quarter of 4.5 per cent,
compared to a year ago, led Mr Tung to say he is reasonably optimistic, for the most part,
that growth will be reasonably sustained.
He said his optimism is based not only by
what is happening in Hong Kong, but also by international events. The recovery in Asia has
brought short-term capital flowing back into the region, which should soon be followed by
long-term capital, and the Sino-U.S. WTO agreement are all positive factors.
As for whether China's WTO entry will hurt
Hong Kong over the medium term, Mr Tung said one thing he knows for sure is that the cake
is going to be much bigger and that a reasonable slice of that will flow through to Hong
Kong.
So in the Year of the Dragon many signs
seem to be forecasting Hong Kong's economy is on the road to a full recovery.
Mr David Hale, Chief Global Economist,
Zurich Group, speaking at the summit's luncheon, in his keynote speech said he also thinks
Hong Kong's recovery will continue into the new year, but cautioned that monetary
tightening by the U.S. Federal Reserve may slow this recovery.
"The American economy has done very
well on the back of the Asian crisis. And now, ironically, the challenges facing America
is how the recovery in Asia could change the parameters for inflation, global capital
flows and other factors that could over the next 12-18 months weaken the U.S.
economy," he said.
Since June the Federal Reserve Bank in the
U.S. has been raising interest rates because of perceptions that with the global economy
strengthening the high level of growth the U.S. has enjoyed could set the stage for higher
inflation, he said.
He predicts monetary tightening will
continue over 2000, probably occurring at a gradual incremental rate, and that the goal of
the Federal Reserve Board is to bring the growth rate to around 3 per cent. Since its
money market deals are already 5.5 percent, it might be able to achieve that goal over the
next six to nine months by raising interest rates to 6 per cent, or worst case basis 6.5
percent, he said.
"If that is all that happens, this
will not be a shock, but it will force Hong Kong to raise interest rates when asset
markets are still in their first stage of recovery," he said. "I think the
monetary tightening likely to occur in American in a 12-18 month view is something [Hong
Kong] can cope with."
Having interest rates rising when the
economy is still fragile is going to be a modest drag on the economy, but the industry
mustn't allow it to become an overwhelming burden, he said.
He feels that over the next couple of
years, we are still assured of a benign business cycle as the U.S. economy is not heading
for a recession, massive credit crunch or severe credit squeeze. "It is probably
heading for a one or two year soft landing. But the price for that soft landing will be a
higher level of interest rates which will create some strains here," he predicts.
Captions:
It was standing room only at this year's business summit.
High calibre speakers at this year's summit never lost the audience's attention for a
second.
SAR Chief Executive Mr Tung Chee Hwa says
he is reasonably optimistic that economic growth will be sustained, but cautions that we
mustn't get carried away.
Mr David Hale, Chief Global Economist,
Zurich Group, expects a benign business cycle to continue, but cautions that monetary
tightening by the U.S. Federal Reserve may slow Hong Kong's recovery.
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