HONG
KONG 'RECOVERY' Part 1: Good stats, but people can't eat
stats By Alan C Fung
HONG
KONG - Since the second half of 2003, a host of
statistics and government officials have heralded Hong
Kong's economic recovery from a six-year slump, capped
by the disastrous severe acute respiratory syndrome
(SARS) outbreak early last year. However, these
encouraging signs of recovery have not yet fattened most
Hong Kong wallets. In fact, most people in Hong Kong are
no better off today than they were before SARS.
It is 8pm and Choi Chi-kwong's restaurant in the
midst of the hustle-bustle of Mongkok in Kowloon is full
of customers. Yet Choi is not smiling as he tends to the
crowd. Ironically, his high business volume is precisely
what troubles him.
"During the SARS period last
year, I created numerous cheap set meals in order to
attract more customers. In fact, the meals were sold at
a loss," Choi explains. "However, I had no choice but to
sell at a great sacrifice, since I would lose more if I
did not do so. After the SARS period, nearly all the
customers kept ordering these cheap set meals. When I
tried to cancel these set meals, business volume dropped
drastically. Now I have to keep offering these set
meals, hoping that customers will also order other
dishes to offset the loss," Choi says with a rueful
smile.
"Is Hong Kong really in the midst of
economic recovery? I don't think so. People are
reluctant to spend even a penny. The economic situation
nowadays surely cannot compare with that of 1996 and
1997," Choi contends. "It is even worse than that of the
early 1990s. What the customers consider the most when
spending is cheap price. Cheap, cheap and cheap, but how
can we sellers earn at such cheap prices? Policies such
as the Individual Tourists Scheme [ITS, allowing
individual tourists from the mainland to visit Hong Kong
without joining group tours] cannot help enough.
"Worse still, the illusion of economic recovery
raises rents. The rent will be increased when I have to
renew the [restaurant's] tenancy agreement this coming
August. However, the flat I bought is still in negative
equity. I don't think I'm better off," Choi concludes.
From SARS to CEPA Undeniably, Hong
Kong's economy has been improving since the second
quarter last year after its pummeling by SARS.
Encouraged by more ties to the booming mainland,
including the Closer Economic Partnership Arrangement
(CEPA) and ITS, that promise more mainlanders and their
money visiting Hong Kong, the stock market and property
markets staged a recovery.
Residential mortgages
also grew strongly in the second half of last year. More
important, cases of negative equity - in which a
homeowner¡¯s debt on a property exceeds its market value -
declined significantly, from 100,000 in the second
quarter of 2003 to 40,000 in the first quarter this
year, according to Hong Kong Monetary Authority
statistics. This striking news helped boost the stock
market, especially the property and banking sectors. The
benchmark Hang Seng Index rose from around 8,000 during
the SARS period to above 14,000 on March 1, an increase
of more than 60 percent. That has prompted many analysts
and government officials to declare that Hong Kong is in
the midst of an economic recovery that will rack up big
growth numbers for 2004.
However, despite the
good signs, there are troubling undercurrents.
First of all, despite the rebound rhetoric of
analysts and government officials, only a tiny portion
of Hong Kong directly benefits from stock- and
property-market gains. The rising Hang Seng Index
doesn't help the majority of Hong Kong people who don't
invest in the stock market. Moreover, if you are one of
those 60,000 homeowners newly escaped from negative
equity status, you get only mental comfort. You are
still bound by the same monthly mortgage payment, and
there are no guarantees about future property prices.
Unless you're planning to sell your property now, your
situation remains unchanged despite the upturn.
The ITS has boosted tourism in Hong Kong.
Nevertheless, according to figures from the World Travel
and Tourism Council, tourism only accounts for 2 percent
of Hong Kong's gross domestic product (GDP). Even
including related sectors, tourism accounts for no more
than 12.4 percent of GDP, so seven-eighths of the
economy doesn't benefit from its rise.
Any gains
from CEPA will be short-lived. Under World Trade
Association agreements, the mainland must open its
market for the same 271 industries covered by CEPA to
all comers within four months. That opening period
started in April.
Bad news below the
radar Aside from limited value of good news about
Hong Kong's economy, there's also a lot of bad news
that's been hidden beneath the optimistic figures.
For example, Hong Kong's unemployment rate has
fallen significantly from the historic high of 8.7
percent last year to the current 7.2 percent. That's a
cause for cheering, but it's also a cause for concern.
In January 2003, before the SARS outbreak, the
unemployment rate was also 7.2 percent. If the SARS
effect is not included, there has been no improvement in
the unemployment rate over the past 17 months.
Furthermore, the jobless rate has not shrunk
during the past two quarters. But the same illusionary
recovery that promises to raise the rent on Choi's
restaurant in Mongkok is also prompting more employees
to seek better jobs, accelerating competition in the
stagnant employment market. Though the unemployment rate
has been steady, the current 3.4 percent underemployment
rate is higher than the 3.3 percent registered in the
third quarter of 2003 and 2.9 percent before the SARS
outbreak. These figures indicate the government is
overly optimistic about the jobs picture.
On the
other hand, deflation has been intensifying since the
start of 2004. Government figures indicate deflation
rates for February of 2.0 percent and 2.1 percent for
March, compared with 1.5 percent in January. The
experience of Choi's restaurant indicates, true to
deflationary times, Hong Kong consumers are keeping
their wallets clamped shut. If the goods are not
necessities or ultra-valued, people are generally not
willing to spend as long as they expect goods to cost
even less tomorrow.
While practical indicators
have lagged all year, stock and property markets have
also lost their momentum in this second quarter of 2004.
Perhaps Hong Kong's recovery bubble has already burst.
Next: What's to be done?
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2004 Asia Times Online Co, Ltd. All rights reserved.
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