Hard Times in Hong Kong- November 7, 2001
Hong Kong is being clobbered by the global slowdown. As an economy so dependent on exports, Hong Kong may well be hit harder than any other Asian nation.
The statistics make a dismal litany of trouble. Unemployment is at more than 5% and expected to hit 6% this quarter. Business growth is virtually nonexistent. Tourism is falling sharply as American visitors hold back in fear of more terror attacks. Exports in the last quarter fell almost 12%, and the outlook is poor. Nine-tenths of Hong Kong's exports are re-exports to and from China. As China's export growth slows, Hong Kong will be directly hit. There is also a fundamental change in Hong Kong's ties with China.
T.J. Bond, Economist, Merrill Lynch Hong Kong: "Hong Kong is slowly being disintermediated as a key entry point into China's markets and as a conduit for investment flows. Essentially Hong Kong's traditional industries and traditional dependence on port flows, the flow goods from China through Hong Kong, is going to be lessened."
And if all that weren't bad enough, Hong Kong does not have a flexible currency. Its so-called peg to the U.S. dollar prevents it from weakening the Hong Kong dollar to take up some of the shock of falling demand. Dumping the peg is being talked about openly, even though government officials insist there's no change planned or imminent. Even so, financial markets are demanding a risk premium for holding Hong Kong dollars.
The economy has gone into a deflationary downturn as the number of jobless grows and consumer demand falls. And consumers, to their shock, are learning there's little the government can do. A minor fiscal-stimulus package is in the works, but Hong Kong's constitution, called the basic law, insists on a balanced budget.
These sores are rubbed raw by the plight of homeowners. Tens of thousands of them poured their savings into the property bubble of the 1990s. Now, some prices are as much as 60% below the 1997 high. Homeowners are faced with negative equity, owing more on their property than it is worth.
—Bill Hartley, Business Correspondent, Associated Press
This fits with a book on Marc Faber, which suggested that Hong Kong would be supplanted by other Chinese port cities (?Shanghai?). |
