Beijing to bolster Hong Kong
economy By Robert M Cutler
MONTREAL - Days before Chinese President
Hu Jintao's visit to Hong Kong this weekend, the
Beijing government's cabinet announced it would
take steps to reinforce the territory's economy.
Shortly before that, the mainland acted similarly
towards Taiwan, easing visa restrictions in both
directions, encouraging tourism and in particular
encouraging more capital investment from the
island's industrialists through provision of a
US$95 billion credit line.
Hu's visit to
Hong Kong is scheduled for his participation in
ceremonies marking the 15th anniversary of the end
of British rule and the inauguration of Leung
Chun-ying as Hong Kong's third post-British chief
executive. Speaking to the official mainland
newspaper China Daily,
Leung has said he seeks to model Hong Kong's
future as a financial center on London and New
York and to reinvigorate its traditional role as a
shipping center.
In particular, Leung
seeks to establish advanced training programs in
maritime and transportation law as well as expand
employment opportunities for residents and their
children in the port's manpower system itself. As
to income distribution, he says that the solution
is not necessarily "to narrow the wealth gap" but
to ameliorate the situation of "those living on
incomes that are too low", for example through
more public housing or price stabilization schemes
for real estate.
Details of the economic
assistance from Beijing are yet to be spelled out,
but at first glance they dovetail with at least
some of Yeung's vision. In particular, the State
Council, or cabinet, has said it will promote Hong
Kong as an offshore financial center and encourage
closer investment, trade, and travel ties. The
cabinet was careful to note that Hong Kong, as a
financial center, will be strongly encouraged to
promote wider adoption of the yuan for
international transactions.
Just two weeks
ago, however, the two financial leaders of Hong
Kong - Financial Secretary John Tsang and Monetary
Authority chief executive Norman Chan - said the
tight relationship between the Hong Kong and US
dollars would continue. The Hong Kong dollar
fluctuates within a band between 7.75 and 7.85 per
US dollar.
"The linked exchange rate is
most suitable for Hong Kong," Tsang said, adding
"I see no need, nor do I have any intention to
change the peg." Thus saying, they contradicted
former Monetary Authority chief Joseph Yam
(1993-2009) who released a paper on Tuesday
suggesting a yuan peg for the Hong Kong dollar.
Hong Kong is not in the direst situation
but still it can use the help from Beijing.
Inflation, though easing, is still high - the
increase in the city's composite consumer price
index (CPI) declined in May to 4.3% year on year
from 4.7% the previous month. When various one-off
government measures during the past year are
netted out, these figures are 5.1% and 5.6%
respectively.
Government economists have
attributed the drop to a smaller increase in
private housing rentals. For the three-month
period from March through May 2012, the average
monthly CPI increase was 0.4%. The Hong Kong
government expects the CPI for the whole of 2012
actually to decline to 3.5% following a 5.3%
increase in 2011.
The CPI news came after
the announcement that Hong Kong's first-quarter
gross domestic product (GDP) for the current year
barely increased (by 0.4%) year on year, below the
1.1% consensus in a Bloomberg News survey and much
lower than the 3% rate registered during the
October-December period in 2011.
Analysts
expect investment growth will continue in the
property sector while the labor market will suffer
as a result of a decrease in external demand.
Property prices hit a historic high in May of
HK$6,288 per square foot (US$8,719 per square
meter), according to Midland Realty property
agency in Hong Kong. The previous high was reached
in August 1997, and it is up 82% from the bottom
of post-crisis slump reached in late 2008.
Only in the New Territories, the least
expensive region of Hong Kong, have prices not
surmounted their previous high. In the Hong Kong
Island region, which is the most expensive, the
newest high is HK$8,889 per square foot. The
overall rental rate, now at HK$20.66 per square
foot, is less than 1.4% under its previous high
reached in August last year.
Hong Kong's
trade deficit is meanwhile growing, at HK$38.8
billion (US$5 billion) in May, amid slowing export
growth. May exports were up 5.2% from May 2011,
down from a 5.6% April year-on-year uptick.
Increased demand by China, Japan, and some other
Asian markets is going some way to offsetting
weakness of demand by Europe and America.
Andrew Sheng, chief of the newly
established Hong Kong-based think tank Fung Global
Institute, writing in China Daily, said
"hardware-driven innovation, especially in
physical technology" is not a strategy for a city
like Hong Kong with its "core competencies". In
his mind, this includes especially the "soft
power" of "its social technology, its methods and
designs for organizing people in pursuit of a goal
or goals."
That is perhaps a more
abstractly programmatic way of expressing Leung's
drive to realize the vision he has set out.
Dr Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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