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

2. Stephen CheungHong Kong Economy2 Contents 1.Hong Kong Economy: Current Situation 2.Internal and External Factors 3.Thoughts and Suggestions

3. Stephen CheungHong Kong Economy3 1.Macro-economic GDP4%  3%  1%  ? Unemployment5% (?) Total export (Aug 01)7.7%  Deflation1.1% 

4. Stephen CheungHong Kong Economy4 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

5. Stephen CheungHong Kong Economy5 Hong Kong Economy Main Board - Figure 1.1

6. Stephen CheungHong Kong Economy6 Hong Kong Economy Main Board - Figure 1.2 Source: http://www.hkex.com.hk/markdata/markstat/equity0108.htm

7. Stephen CheungHong Kong Economy7 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

8. Stephen CheungHong Kong Economy8 Hong Kong Economy GEM - Figure 1.3

9. Stephen CheungHong Kong Economy9 Hong Kong Economy GEM - Figure 1.4 Source: http://www.hkex.com.hk/markdata/markstat/equity0108.htm

10. Stephen CheungHong Kong Economy10 Problems ‘Knowledge-based’ economy –Confident in economic future –Low consumption level –Asset deflation in stock and property markets –Mismatch in labor market

11. Stephen CheungHong Kong Economy11 Loss of Asian Financial Crisis (Stock market + Property market) Government reserve ~ 380 billion Trade liberalization  + Financial market strengthening Problems

12. Stephen CheungHong Kong Economy12 Internal Factors Too much changes Too ambitious Coordination among senior officials Ordinary people blame the Government  Creditability

13. Stephen CheungHong Kong Economy13 Depend more on Government Different fractures Budget deficit  Additional pressure on Government Internal Factors

14. Stephen CheungHong Kong Economy14 Other Asian markets are in bad shape –Singapore –Taiwan Major markets –US –European –Japan External Factors

15. Stephen CheungHong Kong Economy15 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

16. Stephen CheungHong Kong Economy16 External Factors Major market – US –Military action Increase defense spending Reconstruction Airline industry Increase welfare spending  100 billion – 150 billion package

17. Stephen CheungHong Kong Economy17 External Factors Major market – US –Recovery takes time –Long-term implication –Future government deficit –US Treasury securities market

18. Stephen CheungHong Kong Economy18 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

19. Stephen CheungHong Kong Economy19 External Factors High premium for cargo from Jakarta, Bangkok, Kula Lumpur, and Manila Beneficial for goods from HK, Pusan, Singapore, Yokotama, and Singapore

20. Stephen CheungHong Kong Economy20 Thoughts & Suggestions How to regain people’s confidence in: –HK Economy –HK Government

21. Stephen CheungHong Kong Economy21 Thoughts & Suggestions Short-term measures –No significant impact on recurrent expenditure –No significant administrative burden –Effective stimulation

22. Stephen CheungHong Kong Economy22 Thoughts & Suggestions Short-term measures –Tax rebate –Rate concession –Rescue package for ‘negative’ asset class?

23. Stephen CheungHong Kong Economy23 Thoughts & Suggestions Singaporean package –Corporatize the government Distribute the ‘government’ stock to every citizen Dividend payouts depend on the government budget

24. Stephen CheungHong Kong Economy24 Thoughts & Suggestions Corporatization –Chairman: C H Tung –Executive directors: Policy secretaries –Independent, non-executive directors = Legislative Councils

25. Stephen CheungHong Kong Economy25 Thoughts & Suggestions Corporatization –Everybody becomes a shareholder –Payouts depend on the public finance –Share the same objective  Government makes ‘profit’

26. Thank You