Hong Kong Economy
Stephen Yan-leung Cheung
Professor of Finance (Chair)
Department of Economics and Finance
City University of Hong Kong
October 9, 2001
Contents
1. Hong Kong Economy: Current Situation
2. Internal and External Factors
3. Thoughts and Suggestions
Stephen Cheung
Hong Kong Economy
2
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
3
Hong Kong Economy
2. Stock Market
–
Main Board
•
•
Stephen Cheung
Figure 1.1: Market Capitalization of Main Board
and Hang Seng Index
Figure 1.2: Average Daily Turnover in Value
Hong Kong Economy
4
Hong Kong Economy
Main Board - Figure 1.1
Market capitalization of Main Board and Hang Seng Index
6000
18000
16000
Market capitalization
5000
14000
4000
12000
3000
10000
HSI
Market capitalization (in billion HKD)
HSI
8000
2000
6000
1000
4000
0
2000
90
Stephen Cheung
91
92
93
94
95
96
Hong Kong Economy
97
98
99
00
5
Hong Kong Economy
Main Board - Figure 1.2
Source: http://www.hkex.com.hk/markdata/markstat/equity0108.htm
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Hong Kong Economy
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Hong Kong Economy
2. Stock Market
–
Growth Enterprise Market (GEM)
•
•
Stephen Cheung
Figure 1.3: Market Capitalization of GEM and
GEM Index
Figure 1.4: Average Daily Turnover in Value
Hong Kong Economy
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Hong Kong Economy
GEM - Figure 1.3
Market capitalization of GEM and GEM Index
100.00
1000
Market capitalization
90.00
900
800
70.00
700
60.00
600
50.00
500
40.00
400
30.00
300
20.00
200
10.00
100
0
03
/2
00
0
04
/2
00
0
05
/2
00
0
06
/2
00
0
07
/2
00
0
08
/2
00
0
09
/2
00
0
10
/2
00
0
11
/2
00
0
12
/2
00
0
01
/2
00
1
02
/2
00
1
03
/2
00
1
04
/2
00
1
05
/2
00
1
06
/2
00
1
07
/2
00
1
08
/2
00
1
0.00
GEM Index
Market Capitalization (in billion HKD)
GEM Index
80.00
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Hong Kong Economy
GEM - Figure 1.4
Source: http://www.hkex.com.hk/markdata/markstat/equity0108.htm
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Hong Kong Economy
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Problems
• ‘Knowledge-based’ economy
–
–
–
–
Confident in economic future
Low consumption level
Asset deflation in stock and property markets
Mismatch in labor market
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Hong Kong Economy
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Problems
• Loss of Asian Financial Crisis
(Stock market + Property market)
• Government reserve ~ 380 billion

Trade liberalization
+
Financial market strengthening
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Internal Factors
•
•
•
•
Too much changes
Too ambitious
Coordination among senior officials
Ordinary people blame the Government
 Creditability
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Internal Factors
• Depend more on Government
• Different fractures
• Budget deficit
 Additional pressure on Government
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External Factors
• Other Asian markets are in bad shape
– Singapore
– Taiwan
• Major markets
– US
– European
– Japan
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Hong Kong Economy
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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
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Hong Kong Economy
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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
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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
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External Factors
• High premium for cargo from Jakarta,
Bangkok, Kula Lumpur, and Manila
• Beneficial for goods from HK, Pusan,
Singapore, Yokotama, and Singapore
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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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Hong Kong Economy
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Thoughts & Suggestions
• Corporatization
– Chairman: C H Tung
– Executive directors: Policy secretaries
– Independent, non-executive directors =
Legislative Councils
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Thoughts & Suggestions
• Corporatization
– Everybody becomes a shareholder
– Payouts depend on the public finance
– Share the same objective
Government makes ‘profit’
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Thank You