HK will bounce back says consul

City's fundamentals augur well, writes Brian Fallow.

WELLINGTON - Hong Kong's economy may have bottomed, but it is likely to be the end of the year before real signs of recovery are to be seen, says New Zealand's consul-general in the Asian city, James Kember.

Its fundamentals were good, Dr Kember said, citing political stability, a sound banking system and people whose entrepreneurial skills had enabled them to weather several storms in recent decades.

"But because Hong Kong's economy is service-based, it really depends on a regional recovery to kick-start its own economy in the short term," he said.

Hong Kong's GDP shrank 5.1 per cent last year and the consensus forecast for 1999 was a further contraction of 1.1 per cent before growth resumed next year.

Dr Kember said Hong Kong was making the necessary adjustments to the Asian crisis, but because of the Hong Kong dollar's peg to the United States dollar, adjustment was through other mechanisms, especially falling wages and rents.

Property prices had fallen about 50 per cent in the past 18 months, especially at the higher end of the business and residential markets, he said.

The Hong Kong Government forecast consumer prices would fall 2 per cent in 1999.

Unemployment reached 5.7 per cent in the December 1998 quarter, up from 2.5 per cent a year earlier. Imports fell 7 per cent in 1998 and exports by 4 per cent (or 8 per cent excluding re-exports). "But when you start with per capita GDP of $25,000 a 5 or 6 per cent decline still leaves a lot of purchasing power when multiplied by 6.5 million people," Dr Kember said. "New Zealand's market share in its main exports has remained very steady over the past year."

In the year to March New Zealand's exports to Hong Kong were $574 million, down 4.7 per cent on the previous year. About 30 per cent of that was re-exported to mainland China.

Asked about concerns that China's economy was slowing and it might struggle to meet its 7 per cent target this year, Dr Kember said: "I think the most of the signs are fairly positive, from what the banks say."

Beijing was honouring its commitment to a hands-off approach to the city's economy. "It is basically business as usual."

The Hong Kong Government proposes to develop a $3 billion "Cyberport", funded mainly by the private sector, to provide the infrastructure for a cluster of information services companies. "If they get Cyberport going it will be operating within five years," Dr Kember said.

The Government is also courting Disney to establish a Disneyland in the territory. "They are also going down the privatisation route. First on the block is the MTR [underground railway network], but they have also foreshadowed the eventual sale, partial or full, of the Kowloon railway and the airport."