Hong Kong warns on economy

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Tuesday, 21 August, 2001, 13:42 GMT 14:42 UK

Hong Kong warns on economy

Hong Kong's economy is not moving in the fast lane anymore

By BBC Hong Kong reporter Damian Grammaticas Hong Kong's leaders have issued gloomy predictions about the outlook for the territory's economy.

Hong Kong is restructuring from an industrial economy to a knowledge economy Antony Leung, Hong Kong financial secretary The warnings of a slowdown and a rise in unemployment are a major reversal for an administration that until recently insisted Hong Kong was continuing to recover from the Asian Financial Crisis of the late 1990s.

The new realism appears to have been forced on Hong Kong by recent bad news.

Unemployment is rising, and the city's attractiveness as an international business centre was downgraded by the Economist Intelligence Unit earlier this month.

New figures released this week show that the number of people out of work in the territory has increased for the first time in five months.

165,000 people were unemployed from May to July, a jobless rate of 4.7%, up from 4.6%. And there are predictions it will hit 5% before the end of the year.

The knowledge economy

In response the new Financial Secretary, Antony Leung, at the helm since May, was uncharacteristically candid about the territory's problems.

"The current worsening of the unemployment situation is a result of two factors," said Mr Leung. "One is the worsening external environment. Secondly it is the restructuring of Hong Kong from an industrial economy to a knowledge economy."

Last Friday Hong Kong's Chief Executive Tung Che Hwa told an audience of international investors "our economy this year may slowdown somewhat more, and unemployment will go up some more."

Just a few weeks ago Mr Tung was saying the opposite. "Our economic recovery is one of the strongest among all Asian economies," he told local legislators.

Cutbacks

But it is now obvious the global slowdown is affecting Hong Kong in its role as a conduit for Chinese goods heading to Western markets.

Exports from the territory fell by more than 8% in June. The property market is still in the doldrums and confidence is low.

Hundreds of jobs have gone with the closure of the Guangnan supermarket chain, layoffs at the underwear manufacturer Triumph, and cutbacks at many Chinese firms like renren.com, chinadotcom and sina.com.

Mainland competition

An even bigger problem the territory is facing is growing competition from China.

Two of Hong Kong's biggest companies, the banking giant HSBC and the dominant telecoms firm PCCW have said they are moving clerical and support posts to the mainland. HSBC alone is shifting 1,200 jobs across the border to Guangzhou.

And with many goods and services cheaper on the mainland Hong Kong people are increasingly crossing the border to do their shopping in China too.

The territory's attempts to sell itself as a high-value service centre received a knock when the Economist Intelligence Unit said Hong Kong lacked enough skilled workers to fill that role. It said the city would slip from 3rd to 10th place in its league table of international business centres in the next five years.

Solutions

Ironically Hong Kong's government is looking to China to solve it's problems.

It wants to relax the restrictions on Chinese professionals to attract more highly qualified people to the territory, and it's hoping for a boost when China joins the World Trade Organisation.

Mr Tung pointed to international companies opening offices in Hong Kong ahead of WTO entry as "a positive sign."

"We must be confident of our future," he said. "The fact is that over 100 overseas companies have chosen to come to Hong Kong at this time."

But to win the confidence of Hong Kong's people the government needs to show it can do more than just strike a more realistic tone. It must also come up with policies to rejuvenate the economy.

http://news.bbc.co.uk/hi/english/business/newsid_1502000/1502252.stm



-- Martin Thompson (mthom1927@aol.com), August 21, 2001


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