SCMP Friday, June 16, 2000


Price of intervention

For a change, the usually moribund Liberal Party has spun a good yarn. On the day the Bank of China Hong Kong-Macau Regional Office published its quarterly economic report, warning against further falls in property prices, the party announced plans for a rally on Sunday to urge the Government to stop selling land and subsidised flats.

As if this were not a strong enough signal to the Government, property tycoon Li Ka-shing appeared at a public function and felt obliged to offer a word of support for the party that most clearly represents the business sector.

Welcome to the opening salvo of the Liberal Party's campaign for the Legislative Council elections in September. Other political parties may stay away from its rally, but most agree that "breathing life" into the property market is the biggest issue of the election.

The pressure is now on Chief Executive Tung Chee-hwa to address these vociferous calls for extricating homeowners who have fallen into the deep pit of "negative assets" by going into the market when prices were sky high. Having been blamed for precipitating the crash by vowing in his first Policy Address in 1997 to build 85,000 flats a year to suppress soaring prices, Mr Tung is now hard-pressed to satisfy their demands.

After all, despite its avowed economic policy of non-intervention, the Government has always been a major player in the housing market, both as the largest landowner and as a provider of subsidised flats. Its housing policy has always had a strong impact on the market.

But it would be a mistake for Mr Tung to succumb to the latest pressure. Home prices have fallen dramatically, and it hurts. But because of the Hong Kong dollar's peg to the greenback, our cost of living remains about the highest in the region, especially as most of our Asian neighbours have devalued their currencies. High operating costs work against Hong Kong's attempt to further develop itself as a global financial and services centre.

Due to an ever-increasing population, the property sector has long been a main driving force in the local economy. But costs have now become so high that some multinationals have departed for other regional cities, notably Singapore and Shanghai. If flat and office prices rise sharply yet again, this trickle could become a heavy stream.

While Mr Tung's strategy of promoting hi-tech industries has invited criticism, he is right to push for more diversity in the economy. But diversification is unlikely if high costs keep potential investors from coming and drive away those who are already here.

Further falls in property prices may inflict more damage. But what the Government should do, at most, is a little tinkering to inject confidence in the market. The economy is already rebounding. Any drastic measures to push property prices back up would be just as counter-productive as Mr Tung's bid three years ago to boost housing supply as the property bubble was about to burst.