BANKERS TRUST SECURITIES RESEARCH
Hong Kong’s
slowdown is cyclical,
not a collapse
Europe and Southeast Asia. In addition, there is a rising flow of China's most talented people—older people who have achieved such influence that they and their families can move to Hong Kong, and younger people who had the talent to seize educational or job opportunities abroad.
ECONOMIC VULNERABILITY
The notion that Hong Kong is politically doomed is usually substantiated by reference to the 1989-'90 downturn of the economy. The downturn has indeed been dramatic, from 13.8% real growth in 1987 to 2.5% in 1989 and probably a similar figure in 1990. By extrapolating this trend into the future,
one can indeed arrive at a doom-laden conclusion.
However, the evidence is that Hong Kong is not experiencing a monotonic trend, but rather a typical Hong Kong cycle. Periodically Hong Kong goes through such cycles. Booms occur when the U.S. economy is strong, the Chinese economy is strong, and a weak U.S. dollar weakens the Hong Kong currency and encourages Hong Kong exports. Down cycles occur under opposite conditions. The strong U.S. dollar forced down Hong Kong exports in 1985 to a level that created negative real growth.
Hong Kong has been experiencing a cyclically weak U.S. economy, a cyclically weak Chinese economy, and a strong U.S. dollar, compounded by major political uncertainties. In consequence, it is suffering a cylical downturn very much like the one in 1981–282. That downturn was followed by a great upturn and a historic bull market. When the foreign economic factors turn up, the Hong Kong economy will turn up also. Historically, political problems have been consequential when the economy was in difficulty, but far less significant when the economy was booming. This pattern is likely to repeat itself.
HONG KONG ECONOMIC CYCLE 1979-1989
%
16
14
121.7
10.9
9.4
10
8
6
4
13.8
11.9
9.5
6.5
?
2.5
2
0
-0.1
-2
1979
1980 1981 1982
1983
1984
1985 1986 1987
1988 1989
Year
Real GNP Growth, %
Moreover, since Hong Kong is much more than just a supplier for China (see discussion of roles below), it can prosper even when the Chinese
10