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To: Bobby Yellin who wrote (12225)	5/27/1998 6:48:00 AM
From: Alex	Respond to of 116836

Hong Kong leader says 'major economic adjustment' possible ------------------------------------------------------------------------ HONG KONG (AP) - In the government's most pessimistic comments so far, the chief executive said Hong Kong's economy may contract as it adjusts away from a bubble of high property prices, inflation and interest rates. The government is due to release new figures for gross domestic product on Friday. Chief Executive Tung Chee-hwa's comments Tuesday may have been aimed at preparing the territory for bad news. Tung said that in Hong Kong's free-wheeling economy, the government's options were limited. The stock market dropped sharply in response to his comments, and he came under immediate fire from political opponents invigorated by a strong showing in weekend elections. In the midst of Asia's economic crisis, Hong Kong has maintained strong foreign currency reserves and kept its firm link to the U.S. dollar. However, it is suffering from a 14-year high in unemployment - a rate of 3.9 percent - as well as falls in the all-important stock market and property sector. The government and outside analysts previously have projected that the economy would continue growing, although slowly. Now, some analysts are predicting it will contract in early 1998, before posting a very small gain for the entire year. ''Years of high property prices, high inflation and negative interest rates had created a bubble economy which needed to be corrected if we are to remain competitive,'' Tung said in comments made at the Foreign Correspondent's Club. ''The Asian financial turmoil accelerated the pace of correction.'' ''Indeed, we are now in the depth of a major economic adjustment, the result of which may be prolonged and painful to everyone,'' Tung said. ''The growth of the economy will fall substantially, and indeed may even be negative.'' He said that Hong Kong was fortunate to have large foreign currency reserves, and that China's economy continues to grow strongly. In Sunday's election, parties demanding more democracy swept the popular vote. Led by the Democratic Party of Martin Lee, they focused their campaign on political - rather than economic - issues. They say they will press for a re-evaluation of Hong Kong's post-handover constitution, which calls for a very slow increase in the number of legislative seats filled by direct election. Hong Kong became part of China on July 1. Lee, in a radio interview, said the government had not been open enough about the problems resulting from the Asian crisis. ''My complaint is, why were we not forewarned earlier that this could happen?'' he said. He pledged to monitor the government's actions on the economy, and party officials said they would be putting together a package of economic proposals.