ll the financial authorities be able to provide some means of draining excess liquidity from the banking system?
Will inflationary pressures mandate a decoupling of the Hong Kong dollar from the US dollar?
Will sharply negative real interest rates lead to yet another potentially disastrous spiral in the territory's residential property market?
This formidable battery of challenges, however, are faced against a background of great economic opportunity. In fact, Hong Kong's economic problems remain the product of massive capital inflow, rather than capital flight. The opportunities in Hong Kong, and in particular in the profits to be had from the rapid industrialization of the Pearl River Delta in Guandong Province, are sufficient to persuade Hong Kong's entrepreneurs to stay in Hong Kong. This is despite the well-reported "brain drain" of professionals.
The economic future of Hong Kong thus depends fundamentally on its increasing integration with Guangdong Province.
How far will Peking allow Guangdong and Hong Kong to form an independent base of economic power?
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