SCMP Tuesday, August 21, 2001

Light in the gloom

Before rising unemployment increases the negative sentiment spreading across the SAR, it is worth taking a closer look at the local economy to see to what extent the gloom is justified.
Although some facts cannot be glossed over - namely the downturn in the United States economy, the economic problems facing Japan and the inevitability of a further rise in Hong Kong's jobless total when this year's school leavers come on to the labour market - there are some positive factors which show the situation in a rather more hopeful light.
Compared with regional neighbours like Singapore and Taiwan, both of which are heavily dependent on the semi-conductor industry and have been badly affected by the slump in the US electronics sector, the SAR is weathering the storm reasonably well.
Our entrepreneurs are restructuring their operations and revising their strategies to stay afloat. Despite gloomy forecasts about the SAR's declining competitiveness, more than 100 foreign enterprises have set up offices here over the past year, and expatriate executives have continued to arrive.
The SAR is also benefiting from the mainland's success in sustaining an impressive eight per cent growth despite the global downturn. More opportunities beckon as the mainland joins the World Trade Organisation.
The biggest obstacle to confidence in this city is the property market. Since the slump in prices, the middle-class remains trapped in negative equity, with no sign of an end to their woes. Understandably, they have prudently decided to save their money in case worse times lie ahead. While this remains the prevailing view, there is little chance of a recovery in the retail trade.
Yet, for those who have jobs and can service their debts, the outlook is reasonably bright. Interest rates are low, some costs have actually come down because of imported deflation due to the strength of the US dollar, to which the local currency is pegged. Rents have fallen substantially.
Hong Kong alone can do nothing to avert the fallout of a worsening global economy. Nor are there short-term solutions to rising unemployment caused by the SAR's transformation from an industrial economy to a knowledge one. There is no escaping the fact that to flourish in the future, the education system has to reform to reduce Hong Kong's skills deficiency, and that will take time to bear fruit.
In the short-term, spending on untargeted social welfare and bridge building is not the answer. What can be done, even before the Chief Executive's October Policy Address, is to redefine the Government's housing policy. Offering home-starter loans to help potential buyers into the property market would be more effective than selling public housing or running home-ownership schemes. The high mortgage ceiling is no longer appropriate and could be reduced.
Once the property market shows signs of recovery, confidence will return, and people will be much more prepared to spend their hoarded cash.