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Hong Kong is undergoing its second downturn since the Asian financial crisis of 1997-98. Gross domestic product last year grew only 0.2 per cent compared with 10.4 per cent a year earlier. The economy is also suffering from record unemployment, the after-effects of the collapse of a property bubble during the 1990s and persistent deflation. Part of the deflation comes from integration with lower cost China.
If Hong Kong is to maintain its higher living standards, it has no choice but to try to improve the sophistication of the services it offers. One of the greatest barriers is the lack of educated professionals. Only about 13 per cent of the Hong Kong’s population are university graduates which is about half the average for countries in the Organization for Economic Cooperation and Development.
Merely waiting for the education system to improve will take too long. The territory must change its tight immigration laws to allow local companies to recruit mainland talent more easily and it must improve the living environment in Hong Kong to make it attractive for professionals from the overseas.
Despite the obstacles, the territory is already beginning to move up the value chain in several areas, notably trade and logistics. In 2001, re-exports through Hong Kong - goods going into and out of mainland China via the territory — were valued at the equivalent of 105 per cent of the GDP. Hong Kong’s port remains the busiest in the world but is increasingly lacking competition from the lower cost rivals in China. Hong Kong’s ports today handled only 35 per cent of China’s foreign trade compared with 55 per cent five years ago.
The territory has already begun adapting to this change, however, moving up for the lost port trade by moving into air cargo.
Air cargo volumes through Hong Kong have risen an average 10 per cent a year since 1997, boosting land freight in the process. Hong Kong’s existing role as an aviation hub for the international passenger traffic has underpinned its emergence as an air cargo handler. This gives it an edge over nearby mainland airports.
Another factor supporting Hong Kong is that its manufacturing base, Guangdong, is itself becoming more competitive. Once restricted to cheap toys and other goods, Guangdong is increasingly benefiting from out sourcing by the Japanese, the South Korean, and the Taiwanese producers of electronics.
Lifted by stronger domestic demand, the Thai economy is finally starting to pick up. Most Bangkok-based brokerages have upped their 2002 economic-growth projections from 2 per cent to between 3 and 3.5 per cent. The ministry of finance, meanwhile, recently pumped up its forecast from 2.3 per cent to 3.4 per cent.
Healthier consumer spending has provoked the revisions. According to UBS Warburg. Strong and steady new housing demand is taking up the slack in the construction and building-materials industries. Overall economic confidence is decidedly on the upswing. The Bank of Thailand’s survey of local business sentiment saw its index rise from 49 per cent in January to an outlook of 54 per cent through April.
In recent months the Thai government has pumped massive amounts of public money into the economy — over 80 billion bath ($1.85 billion) in January a 19.6 per cent year-on-year increase.
Coupled with a looser monetary policy, low interest rates on bank deposits are pushing more local money into the stock exchange of Thailand, which has witnessed a 22 per cent gain since January, while encouraging more Thais to consume on credit.
