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Hong Kong creeps back

HONG Kong has just conducted what passes for elections in the Special Administrative Region of China.

The results did not entirely go as analysts predicted. The “good guys” represented by the Democratic Party lost significant ground to the “bad guys” in the shape of the pro-Beijing Democratic Alliance for the Betterment of Hong Kong.

The fact that less than half the 1.3 million registered voters bothered to turn out, underlines the apolitical and pragmatic nature of most Hong Kong people.

Not that they are happy with the setup. The Legislature has no real power, other than that vested in Tung Chee-Hwa, the chief executive who was hand picked by Beijing. And he is deeply unpopular.

To a certain extent, Tung has had a bad rap. Hong Kong’s prosperity seemingly dissolved in the wake of the Royal Yacht Britannia, when she sailed off in July, 1997, carrying the last Governor Chris Patten. It was hardly Tung’s fault that the Asian volcano erupted almost immediately and bit deep. Within 18 months, the growth numbers had been wiped out and the territory went into recession. Unemployment climbed to 6 per cent. Inflation was replaced by deflation. Share prices nose dived. Worst still, residential property halved in value.

Hong Kong is famous for its ability to punch above its weight, and bounce back off the ropes. The comeback has been slower this time, and the recovery is not complete.

But a recent visitor to these shores has no doubt that it is on the way. The Financial Secretary of the SAR Government, Donald Tsang, is as colourful as his leader is dour. With his trademark bow-tie almost spinning with enthusiasm, Tsang briefed a business lunch on the strong growth in exports, the bonanza from China’s WTO entry just around the corner and the excitement engendered among the biggest technology names in the world by Hong Kong’s plans to build a cyber port.

The Hong Kong Government has raised its 6 per cent GDP growth forecast for 2000 upwards to 8.5 per cent. But some of the underlying figures look a little rubbery.

Deflation is still a spectre at the feast with the Composite Consumer Index (CCPI) tipped to fall 3.5 per cent over the year. Unemployment has stuck at 5 per cent and the mood remains downbeat. Yet retail sales were up 12 per cent by volume.

So who was doing the buying? Tourists it seems, with arrivals in the first half of the year up 15 per cent bringing receipts of a handy HK$30 billion (A$6.6billion).

Domestic exports are growing by 20 per cent or so, and the infinitely more important re-export numbers are holding up well. The Kwai Chung container port is the busiest in the world.

This is where the “Greater Hong Kong” story comes in. Over 95 per cent of the more than US$150 billion in re-exports go to and from the Chinese mainland.

Hong Kong is the most important entry port for China and it handles 40 per cent of her foreign trade.

Concern had been expressed that China would interfere with the SAR economy and kill the golden goose. That has not happened. In fact, Chinese Premier Zhu Rongji was recently in touch with the chief executive of the Hong Kong Monetary Authority, Joseph Yam, seeking a spot of advice on the implications of a more flexible rate for the renminbi.

The goal for economic strongman Zhu is to use the WTO accession as the platform to eventually make the currency fully convertible on the capital account, which embraces investment flows, instead of just on the current account that relates to imports and exports.

Hong Kong does face some stiff challenges. In the short term, having its dollar pegged to the rocketing greenback seems sure to reduce competitiveness. The oil price is another negative.

In the long term, Shanghai will become a formidable competitor as a financial and commercial centre. Multinational companies are increasingly setting up shop directly in Beijing.

The southern ports in Yantian and Shekhou are growing rapidly from a small base, and will inevitably siphon off some of the China trade traffic. However, by the time these developments have taken their course, Hong Kong will no doubt have reinvented itself once more.

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