Hong Kong's economic foundation still strong

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Opinion / Liang Hongfu

Hong Kong's economic foundation still strong

By Hong Liang (China Daily)
Updated: 2007-08-07 07:11

There are reasons for Hong Kong to feel optimistic these days. The stock
market is gaining momentum, the government has reported a
higher-than-forecast budget surplus, and an international credit rating
agency gave Hong Kong its strongest ever vote of confidence.

The credit rating upgrade is in recognition of the city's strong economic
fundamentals, according to financial secretary John Tsang.

Things certainly didn't seem so assured a few months ago when many Hong
Kong economists and business leaders were fretting about the erosion of
competitiveness, especially in capital intensive economic sectors, in the
face of rising challenges from mainland cities, particularly Shanghai and
Shenzhen.

The question to ask is what constitutes Hong Kong's economic
fundamentals? Industry was out many years ago. With the wholesale
migration of manufacturing activities to the mainland, domestic exports
have slipped into economic oblivion. Re-exports of goods made on the
mainland, the main engine of economic growth in the 1990s, is fast
dissipating as more and more shipments are diverted to ports in Shenzhen
and other cities in Guangdong province.

Meanwhile, the mainland stock market's boom has greatly boosted
Shanghai's standing as a credible source of capital and raises the
question of Hong Kong's long-term relevance to the mainland's economic
development. The media on the mainland and in Hong Kong has greatly blown
up the expectation that Shanghai will overtake Hong Kong in the amount of
capital raised in initial public offerings and the issuance of other
instruments.

But we don't believe that such developments have in any way shaken Hong
Kong's economic foundation, which rests securely on the bedrock of a
dynamic free enterprise system, preserved and disciplined by the rule of
law. That system will not perish as long as we have a relatively
corruption-free government that is efficient and accountable, and an
independent court of law that is seen by the public to dispense justice
fairly, equitably and without undue delays.

To be sure, Hong Kong's container ports, no matter how efficient they may
be, can never hope to compete with facilities in Shenzhen in terms of
cost. Also, Shanghai has never been shy about its bid to become China's
premier financial center. But there is nothing to stop Hong Kong from
leveraging its existing advantages to benefit from these developments.

It is clear that Shanghai's bid to be an international financial center
is dependent on the renminbi becoming fully convertible. For various
reasons, that process is expected to be long and gradual. It leaves
plenty of time for Hong Kong to expand and consolidate its role as an
international financial center and to explore with Shanghai on developing
business opportunities on a complimentary basis.

The latest economic indicators have pointed to the fact that the
transformation into a high-value-added, knowledge-based economy is
producing results. But market forces have produced a number of unpleasant
side-effects that have manifested in the widening wealth gap.

Understandably, tough legislations to maintain a more balanced course of
development could distort the market forces at play. But the Hong Kong
government can certainly afford a more generous housing program to ease
the pain of a growing number of families hit by dwindling income.

E-mail: jamesleung@chinadaily.com.cn

(China Daily 08/07/2007 page10)

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