Hong Kong Economy Stephen Yan-leung Cheung Professor of Finance (Chair) Department of Economics and Finance City University of Hong Kong October 9, 2001.

Hong Kong Economy

Stephen Yan-leung Cheung

Professor of Finance (Chair)

Department of Economics and Finance

City University of Hong Kong

October 9, 2001

Stephen Cheung Hong Kong Economy 2

Contents

1. Hong Kong Economy: Current Situation

2. Internal and External Factors

3. Thoughts and Suggestions

Stephen Cheung Hong Kong Economy 3

Hong Kong Economy

1. Macro-economic

GDP 4% 3% 1% ?Unemployment 5% (?)Total export (Aug 01) 7.7% Deflation 1.1%

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Hong Kong Economy

2. Stock Market

– Main Board

• Figure 1.1: Market Capitalization of Main Board and Hang Seng Index

• Figure 1.2: Average Daily Turnover in Value

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Hong Kong Economy Main Board - Figure 1.1

Market capitalization of Main Board and Hang Seng Index

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Hong Kong Economy Main Board - Figure 1.2

Source: http://www.hkex.com.hk/markdata/markstat/equity0108.htm

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Hong Kong Economy

2. Stock Market

– Growth Enterprise Market (GEM)

• Figure 1.3: Market Capitalization of GEM and GEM Index

• Figure 1.4: Average Daily Turnover in Value

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Hong Kong Economy GEM - Figure 1.3

Market capitalization of GEM and GEM Index

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Hong Kong Economy GEM - Figure 1.4

Source: http://www.hkex.com.hk/markdata/markstat/equity0108.htm

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Problems

• ‘Knowledge-based’ economy

– Confident in economic future– Low consumption level– Asset deflation in stock and property markets– Mismatch in labor market

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• Loss of Asian Financial Crisis(Stock market + Property market)

• Government reserve ~ 380 billion

Trade liberalization +

Financial market strengthening

Problems

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Internal Factors

• Too much changes

• Too ambitious

• Coordination among senior officials

• Ordinary people blame the Government Creditability

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• Depend more on Government

• Different fractures

• Budget deficit Additional pressure on Government

Internal Factors

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• Other Asian markets are in bad shape– Singapore– Taiwan

• Major markets– US– European– Japan

External Factors

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External Factors

• Major market – US

– All incidents: Risks

• A collapse in US consumer and business confidence

• Influence on other economies

• How long this war will last

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External Factors

• Major market – US

– Military action

• Increase defense spending

• Reconstruction

• Airline industry

• Increase welfare spending 100 billion – 150 billion package

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External Factors

• Major market – US

– Recovery takes time– Long-term implication– Future government deficit– US Treasury securities market

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External Factors

• Major market – US

– US economy negative growth for 2001– US consumer and business confidence are low– Strong US dollar– US interest rate , but not for long

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External Factors

• High premium for cargo from Jakarta, Bangkok, Kula Lumpur, and Manila

• Beneficial for goods from HK, Pusan, Singapore, Yokotama, and Singapore

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Thoughts & Suggestions

• How to regain people’s confidence in:

– HK Economy

– HK Government

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Thoughts & Suggestions

• Short-term measures

– No significant impact on recurrent expenditure– No significant administrative burden– Effective stimulation

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Thoughts & Suggestions

• Short-term measures

– Tax rebate– Rate concession– Rescue package for ‘negative’ asset class?

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Thoughts & Suggestions

• Singaporean package

– Corporatize the government

• Distribute the ‘government’ stock to every citizen

• Dividend payouts depend on the government budget

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Thoughts & Suggestions

• Corporatization

– Chairman: C H Tung– Executive directors: Policy secretaries– Independent, non-executive directors = Legislat

ive Councils

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Thoughts & Suggestions

• Corporatization

– Everybody becomes a shareholder– Payouts depend on the public finance– Share the same objectiveGovernment makes ‘profit’

Thank You