Memories of the golden days of the mid 1990s, peppered with the prolonged economic adjustment, is the major cause of pessimism among many Hong Kong residents today, says James Thompson, chairman of Crown Worldwide Holdings.

Because Hong Kong's economy started sliding just after the handover, many people have taken up the national sport of blaming the administration for their woes.

"In my personal opinion, I don't really think there is much reason to complain about the situation in Hong Kong today," the AmCham chairman told members at the Chamber's January 24 roundtable luncheon.

Shooting off a scorecard of pluses, Mr Thompson said that with a GDP per capita of nearly US$25,000, Hong Kong is among the wealthiest economies in the world. Add to that free education, basically free healthcare, subsidised housing for 50 per cent of the population, and tax-free earnings for 65 per cent of the workforce, then things couldn't look much better for a Hong Kong resident.

"I would also point out that consumer prices and property prices have been dropping far more than salaries since 1999, which makes Hong Kong a less expensive city for all of us," he said. "... I certainly don't feel there is justification for the negative mindset that seems to be continuing."

This is all the more so given that reports show economic recovery in Hong Kong has been on an upward swing since the third quarter of last year. Mr Thompson said he expects the economy to rebound significantly in 2003, and GDP growth will be at least 4 per cent.

"I base my optimism on the fact that Hong Kong will continue to solve its economic problems and the U.S. economy will continue to improve. I also see China continuing to have solid growth with some of the benefits -- such as many more Mainland tourists coming here -- rubbing off on Hong Kong. I also believe that deflation will slow this year as the economy revives," he said.

He also pointed out that Hong Kong businesses have been cutting costs for a number of years now, which has made companies more competitive and much more efficient.

One area where Hong Kong fails dismally, however, is pollution. Air pollution, especially, can become hazardously high at times and is actually claiming people's lives. He urged both the Hong Kong and Mainland authorities to work relentlessly to tackle the problem.

Though a self-confessed optimist, Mr Thompson said war with Iraq could derail the global economic recovery and nullify the economic stimulus packages put in place by the U.S. He pointed out that during the last war with Iraq, businesses put on hold all investment, expansion and hiring plans for the year. A new war would again freeze investments for a year.

The Asian financial crisis that forced South Korea to implement long-overdue changes in the country's economic policy and helped the peninsula's economy rebound strongly in just five years, also gave businesses a fundamental lesson in economics, said a leading economist.

Kim Sun-bae, managing director of Asian Pacific Economic Research for Goldman-Sachs Hong Kong, told members at the Chamber's January 27 roundtable luncheon that four key changes occurred as a result of the economic crisis. The first, and perhaps most significant, is that family-owned industrial giants, known as chaebols, are no longer protected by the notion that they are too big to fail. Second, the country moved from a Stalinist Economic Model to a market system. Third, cross-debt guarantees amongst diversified chaebols have almost been completely wiped out. And fourth, capital markets have been blown wide open to foreign investors.

With the economy overhauled, Mr Kim said two issues threaten to slow down South Korea's economic growth in 2003. The first is a weaker consumer buffer for products and services, and the second is external instabilities, such as the pending war in Iraq.

Mr Kim predicts that the goal set by Roh Moo-hyun's administration of 7 per cent GDP growth over the next cycle is unrealistically high, and expects the final number to be around 5.5 per cent.

Speech    Goldman Sachs (Asia) LLC

Europe's single currency, the Euro, has appreciated by 30 per cent over the last 15 months to climb to levels not seen since October 1999.

Frank Sperling, head of German Multinational Corporates, NE Asia, DZ BANK AG, attributes the growth to geopolitical uncertainty, a growing European Union, and economic fundamentals of the U.S. and the EU.

Speaking at the Chamber's February 14 roundtable luncheon, he said the successful completion of negotiations in December last year for 10 new candidate countries to join the EU on May 1, 2004, should also give the currency an added boost.

A larger EU should increase the amount of Euros held as foreign exchange reserves, which stood at 12.7 per cent of all international currency reserves in 2000, compared to 68.2 per cent in US dollars. "Compared with the US dollar, the Euro still does not play an important role as international currency reserve," he said. "However, Asian central banks have increased their share in Euro holdings."

To stimulate the economy and curb persistently high inflation, the European Central Bank bowed to pressure and cut interest rates by half a percentage point to 2.75 in December. Mr Sperling predicts the low interest rate will be short lived and he expects Euro interest rates to rise to 3.25 per cent by the end of the year. He also expects the cost of borrowing in the U.S. will go up by 2.1 percentage points this year to reach 3.5 per cent by year-end.

But he is unsure just how long the Euro can continue its strong run. "The meteoric rise of the Euro is to a large extent attributable not to its inherent strength but, due to the geopolitical uncertainties surrounding the threat of war with Iraq," he said. "This risk is virtually impossible to quantify but may continue to weaken the US dollar. However, as soon as economic recovery takes hold in the U.S., the greenback should be in a position to recover."

Mr Sperling's Speech     Mr Sperling's Slides

Thirty-seven members took part in the Chamber Golf Tournament at Xili Golf and Country Club in Shenzhen on February 13. Members enjoyed a fabulous breakfast buffet, followed by a shotgun start 18-hole tournament. A great day was wrapped up with another great buffet in the afternoon and an awards ceremony. For those of you who didn't make this trip, be sure not to miss our next event! Left photo: three members pose for a group photo on the course. Right photo: Kate Burton, of Central Golf, presents a prize to Edmond Yue, the overall winner of the day.