"As the world economic pie grows more slowly, each economy
must fight harder to expand its market share if it wishes to maintain its current growth level. Existing market shares must be defended aggressively. Simultaneously, new attacks must be launched on those of competitors. For economies enjoying strong growth, failure could mean an abrupt end to the upward trend. For struggling economies, failure could worsen existing problems, create new ones and deepen the trough into which they have fallen. 'Stagflation' is the word implied, but not said, in many current Hong Kong economic forecasts. It is the word often inferred, but not heard or read, in reports in the local English-language business press.
'Stagflation' is not a popular word. It embodies all that is 'evil', unwanted and profane in economics. It conjures up the grimmest of images.
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"Even before the Gulf Crisis, there was a consensus of opinion that the territory was in a period of sustained slow economic growth and high inflation. The optimists pinned their higher hopes on a 'soft landing' for the U.S. economy and on sustained growth in consumer demand in Europe and Japan. These hopes are being buried beneath the sands of the Middle East."
How
"Take inflation, for example. We have been told that slower
economic growth will ease the tightness in Hong Kong's labour market, check rising wages and thereby cool the territory's inflationary fires. Do not hold your breath. We have heard this same story since 1988, during which time real GDP growth has dropped 4.7 percentage points while inflation has actually risen by more than 2.5 percentage points. Hong Kong's growth rate is now about two-and-a-half percent. much lower must it fall before the promised anti-inflation benefits materialise? How could anyone sensibly advocate that it should fall further? Such delusions and empty promises are foolish and counter-productive. It is a good thing to be positive, but positive-thinking is best based on reality. Hong Kong's inflation and slow growth problems are not disappearing, and will not disappear, of their own accord. Clear, decisive action is needed to correct imbalances in the local economy. Such action was needed well before the first Iraqi tanks rolled into Kuwait. But now that the world economy appears to be on the verge of recession, such action is absolutely vital."
Mr. Li went on to suggest options for Hong Kong. This point is wider: Hong Kong economic expertise must be seen and heard in discussions world-wide within the context of all the facets of Hong Kong's life. Hong Kong must be "defined", explained and known as
a place that offers ideas, as well as goods and services. It must be known to have the talent to engage in discussion which