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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%
Stephen Cheung Hong Kong Economy 4
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
Stephen Cheung Hong Kong Economy 5
Hong Kong Economy Main Board - Figure 1.1
Market capitalization of Main Board and Hang Seng Index
0
1000
2000
3000
4000
5000
6000
90 91 92 93 94 95 96 97 98 99 00
Mar
ket
cap
ital
izat
ion
(in
bil
lio
n H
KD
)
2000
4000
6000
8000
10000
12000
14000
16000
18000
HS
I
Market capitalization
HSI
Stephen Cheung Hong Kong Economy 6
Hong Kong Economy Main Board - Figure 1.2
Source: http://www.hkex.com.hk/markdata/markstat/equity0108.htm
Stephen Cheung Hong Kong Economy 7
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
Stephen Cheung Hong Kong Economy 8
Hong Kong Economy GEM - Figure 1.3
Market capitalization of GEM and GEM Index
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
03/2
000
04/2
000
05/2
000
06/2
000
07/2
000
08/2
000
09/2
000
10/2
000
11/2
000
12/2
000
01/2
001
02/2
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03/2
001
04/2
001
05/2
001
06/2
001
07/2
001
08/2
001
Mar
ket
Cap
ital
izat
ion
(in
bil
lio
n H
KD
)
0
100
200
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500
600
700
800
900
1000
GE
M I
nd
ex
Market capitalization
GEM Index
Stephen Cheung Hong Kong Economy 9
Hong Kong Economy GEM - Figure 1.4
Source: http://www.hkex.com.hk/markdata/markstat/equity0108.htm
Stephen Cheung Hong Kong Economy 10
Problems
• ‘Knowledge-based’ economy
– Confident in economic future– Low consumption level– Asset deflation in stock and property markets– Mismatch in labor market
Stephen Cheung Hong Kong Economy 11
• Loss of Asian Financial Crisis(Stock market + Property market)
• Government reserve ~ 380 billion
Trade liberalization +
Financial market strengthening
Problems
Stephen Cheung Hong Kong Economy 12
Internal Factors
• Too much changes
• Too ambitious
• Coordination among senior officials
• Ordinary people blame the Government Creditability
Stephen Cheung Hong Kong Economy 13
• Depend more on Government
• Different fractures
• Budget deficit Additional pressure on Government
Internal Factors
Stephen Cheung Hong Kong Economy 14
• Other Asian markets are in bad shape– Singapore– Taiwan
• Major markets– US– European– Japan
External Factors
Stephen Cheung Hong Kong Economy 15
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
Stephen Cheung Hong Kong Economy 16
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
Stephen Cheung Hong Kong Economy 18
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
Stephen Cheung Hong Kong Economy 19
External Factors
• High premium for cargo from Jakarta, Bangkok, Kula Lumpur, and Manila
• Beneficial for goods from HK, Pusan, Singapore, Yokotama, and Singapore
Stephen Cheung Hong Kong Economy 20
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
