CONFIDENTIAL
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MDHIAN 7362
export trade, which the CPG still wishes to promote.
Hong Kong's speculative investors (e.g., in PRC real estate) have begun to stress the Limited sums of money they have so far put at risk in China projects (e.g., Wharf Holdings) or
Wharf Holdings) or the massive strength of their balance sheets (e.g., SHK. Properties).
The Home Front
18. Hong Kong's trade figures for the first half of 1993 were weaker than expected. Total trade rose by 14.8 per cent, compared to 21.7 per cent in the same period last year, the growth in re- exports was down from 29.2 per cent to 21.5 per cent. However, the business community shrugged off a downturn in foreign trade, as other data have reinforced confidence in the strength of the economy.
19. Inflation in August crept up to 8.5 per cent from 8.2 in July but was still significantly below our earlier forecast of 9.5 per cent for the year as a whole. The slowdown in retail prices, combined with the continued sluggish rise in real wages, was regarded as good for the territory's external competitiveness. GDP figures published on 5 August showed year-on-year growth of 5.3 per cent for the first quarter. At the same time, a series of Local companies (e.g., Hong Kong Bank, Cheung Kong and Hutchison Whampoa have posted good half-year profit figures. External factors (e.g., the continuing weakness of the US dollar, Lower European and Japanese interest rates) have also convinced most commentators that the territory's economic prospects are soundly based.
20. This upsurge in confidence is now being converted into market trends. The Hang Seng Index broke through 7600 on 19 August and again on 8 September (a 38 per cent increase for the year to date), although it has since consolidated. The property market appears be on an upward course again but is under control. Sale agreements in July rose by 47.4 per cent on June and by 49.8 per cent on a year ago. But they fell back in August after the Hongkong Bank Group introduced new restrictions on mortgages to squeeze out the speculative element involved in this trend.
LOCAL ISSUES
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