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To: semi_infinite who wrote (15923)	8/15/1998 12:03:00 PM
From: Alex	Read Replies (1) \| Respond to of 116984

No light at end of economic tunnel Date: 15/08/98 By DAVID LAGUE, Herald Correspondent in Hong Kong The Hong Kong investment analyst Mr Marc Faber, sometimes known as Dr Doom for his gloomy economic forecasts, is not about to relent as the former British colony plunges towards a recession. He can see no reason to expect a recovery while property prices continue to fall, retail sales to contract, trade to deteriorate, tourists to stay away in droves, the currency to cost too much, unemployment to soar, interest rates to remain high and the Chinese economy to slow sharply. "I guess for everything there is a light at the end of the tunnel," he said yesterday. "It just depends on the length of the tunnel." Even normally upbeat analysts now agree that the tunnel stretching ahead of Hong Kong appears to be getting longer by the minute, with daily doses of bad economic news hammering a generation accustomed to rapid growth and rising living standards. Some economists are now forecasting that Hong Kong is heading for three years of recession, a seemingly unthinkable prospect just a year ago when the stock market's benchmark Hang Seng index peaked at 16,673.25 on a wave of euphoria after the July 1 handover. Since then, much of Hong Kong's wealth has simply evaporated. Yesterday the Hang Seng rallied 8.5 per cent but closed at 7224.7, less than half its peak last year. Property values have crashed by about 50 per cent. An economist with the Bank of East Asia, Mr Shamus Mok, has estimated that the combined stock and property losses over the last year have cost the city of 6 million a staggering $A860 billion, about three times the 1997 Gross Domestic Product. In a recent editorial, the Asian Wall Street Journal ranked Hong Kong's sudden economic collapse with some of the biggest upheavals the port city had suffered in a tumultuous century of war and revolution. "Nearly one year after taking over from the British colonial administration, the Hong Kong Government is facing one of the city's worst crises in modern memory," the paper said. The Hong Kong Financial Secretary, Mr Donald Tsang, acknowledged that Hong Kong's second-quarter economic performance would be "pretty miserable" when he last week released Government figures showing that the economy had contracted 2.8 per cent in the first quarter. The setbacks for the local economy continued this week with the Hong Kong Tourism Association announcing that the number of arrivals for the first six months had slumped 21 per cent compared with the same period last year, slashing about $A3 billion from hotel, restaurant, transport and retail income. A Hong Kong tourist association spokesman, Mr Peter Randall, said deep price cuts as Hong Kong tourist outlets struggled to reverse the tourism decline had also contributed to falling revenue. "It's a double-edged sword," he said. "Hong Kong has been making itself more competitive by lowering its prices. It's become exceptionally good value, but that does mean that foreign exchange earnings go down." In retrospect, most analysts now believe that Hong Kong had priced itself out of the market during the boom years when the cost of residential apartments, shops and offices rocketed to rival prices in Tokyo. The property consultancy Jones Lang Wootten reported last week that prices for luxury homes had dropped 51 per cent from their 1997 peak. Prime office space was 46 per cent cheaper. Despite Government measures to stabilise the market, including a freeze on land sales until next March, prices continue to fall with some commentators suggesting that values could sink a further 30 per cent. This could have a catastrophic impact on thousands of home owners, and undermine local banks that have already been forced to take out hefty provisions against bad loans in other Asian markets. The continued economic decline has intensified pressure on the Hong Kong dollar's peg to the US dollar, but senior Government officials, including the chief executive, Mr Tung Chee-Hwa, and Mr Tsang routinely pledge that the currency peg will remain in place despite the steep devaluations in neighbouring Asian countries. However, there are clear signs that currency speculators believe the Government will lose its nerve and devalue the currency. Mr Tsang this week warned that the authorities would use Hong Kong's massive reserves to hurt speculators caught undermining the currency. "I am certain if anyone is speculating against the Hong Kong dollar peg, we have the strategies and skills to handle it quite easily," he said. "If speculators want to attack the Hong Kong dollar, they will be punished as usual. "I cannot give out details of the tactics because our intervention in the market and fight back against the speculators would need some element of mystery." Mr Faber doesn't share Mr Tsang's confidence. "My feeling is that eventually the Hong Kong dollar will have to be devalued," he said. "The place is too expensive compared with other Asian countries." When the time came to devalue, he believed it would have to be at least 20 per cent - only then might there be some light at the end of the tunnel. "With the dollar down, interest rates could then come down," he said. smh.com.au