Hong Kong's economy turned into positive territory last month after three consecutive quarters of decline. The government's statistics show that the territory's gross domestic product (GDP) grew 0.5 per cent in the second quarter of the year, prompting the administration to revise upward its GDP forecast for the year to 1.5 per cent. However, given the current economic uncertainties, few expect the government's new growth estimate will be met.

Many people have voiced their views on what they feel can be done to give Hong Kong's economy a shot in the arm. In the last issue of The Bulletin, I recommended formulating a population policy to help Hong Kong's economy. In this issue, I propose fuelling development of industries and stabilising the property market.

Given that the cost of doing business in Hong Kong is far higher than that in the Mainland, over the past 20 years many manufacturers have moved their factories across the border. Nevertheless, Hong Kong's total exports of manufacturing goods for 2001 amounted to HK$153.5 billion. The industry sector as a whole, which now employs more than 200,000 workers, still constitutes 14 per cent of the local GDP. It is undoubtedly one of Hong Kong's main sources of foreign exchange and a strong employer. Any further decline of industries in Hong Kong would undoubtedly affect the local economy.

Most people agree that industries in the territory still have room for development, provided that they adopt a flexible business approach and move up the value chain. As such, I have called on the administration to proactively drive the industrial sector forward. From my personal point of view -- the Chamber has not taken a position on this -- such preferential treatment as tax concessions for R&D expenses, tax exemption for large investment projects, setting up industrial zones at the border to import workers from China, tax breaks for land use, etc, can be considered.

I believe there is a pressing need to alleviate the situation of local industrialists relocating across the border and bringing their jobs with them. Revitalising, or providing incentives, for the industry sector would also stimulate the economy by attracting new funds. Hong Kong needs to catch up with neighbouring regions and cities, including Taiwan, Singapore and Shanghai, which have taken initiatives to attract foreign capital in recent years.

The government, however, must exercise fair treatment of all investors, be they domestic or overseas, new or old investors. For instance, if certain new projects and overseas investors are offered tax exemptions, local investors already with investments here might feel they are being treated unfairly. This might prompt them to shut down their operations in the territory or to reregister their business in another area, and Hong Kong would suffer as a result.

In addition to offering incentives to revitalise industries, the administration should also strive to stabilise the property market, which will accelerate economic recovery. Government figures show that internal consumption remains weak, despite stronger domestic exports and more tourist arrivals pushing up GDP growth in the second quarter. This is attributable not only to severe unemployment and lower salaries, but also fluctuations in the property market.

More than 1.5 million Hong Kong residents own their own home, and when you take into account their families, the number of people involved must be millions. Property prices have dropped by 50 per cent since 1997, which has resulted in a significant decline in the value of people's assets. Even if all the homeowners are still employed, they face tremendous psychological pressure which is forcing them to adopt a wait-and-see attitude towards spending.

The pressure on small- and medium-sized enterprises is also strong, because many of them have mortgaged their properties for loans to support their businesses. As a result, declining asset values also reduces their credit evaluation, which could force some entrepreneurs to close down their business if their cash flow runs dry. This, in turn, would push up unemployment and further dampen consumer spending.

Therefore, stabilising the property market should be a top priority of the government. Again, in my personal view, it must freeze land sales and abandon the home-ownership scheme if property prices continue to fall further. Consideration should be also given to put sites earmarked for property development above railway stations and reserve them in the land bank. This will enable property developers to apply for scheduled sales of such sites according to market demand and avoid turbulence in future.

I would like to stress that these suggestions are solely to reinvigorate the Hong Kong economy, and not to help real estate developers. Only 50,000 out of the 1.55 million private residential flats in Hong Kong are held by developers. A gradual rise in property prices will benefit the community as a whole by reviving consumer confidence and the economy.