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THE ECONOMY
Kong, there was a recovery in the growth rate of Hong Kong dollar deposits and admin- istered interest rates also eased. Reflecting the changes in Hong Kong dollar deposits, both the Hong Kong dollar and foreign currency components of the money supply fluctuated during the year. But for the year as a whole, they both recorded significant increases. Meanwhile, some shift in deposits from banks to deposit-taking companies was recorded during the second and the third quarters, because the interest rates offered by the latter, being closely related to money market rates, were mostly above those set by the Hong Kong Association of Banks during this period. But the shift was reversed in favour of banks in the fourth quarter, as money market rates generally eased.
The monetary sector expanded further with five more bank licences granted to foreign banks, and four additional deposit-taking company licences and six new registrations of deposit-taking companies granted during the year. There were several revocations and suspensions of deposit-taking company registrations, mostly due to failure to meet statutory liquidity or capital requirements. This was not indicative of any serious problems in the deposit-taking company sector, which may arguably emerge stronger overall as a result of some rationalisation.
The Hong Kong stock market continued to function efficiently and contributed actively to the channelling of equity finance. During the year, there were eight flotations of new shares, four companies made rights issues and four others made private placements, with a total of $2,158 million raised in equity capital. Although trading in certificates of deposit was less buoyant when compared with 1983, probably because holders preferred to hold these instruments to maturity now that the withholding tax on Hong Kong dollar deposits has been abolished, a market in commercial paper began to emerge in 1984. In April, the government launched a bond issue (the first since 1975) of a nominal value of $1,000 million, which was heavily over-subscribed. As these bonds qualified as liquid assets under the Banking and Deposit-taking Companies Ordinances, a large portion was held by banks and deposit-taking companies and there was little trading of the bonds in the secondary market.
Political uncertainties continued to affect the stock market, which exhibited wide fluctuations during the year. The turnover on the four stock exchanges in 1984 was: Far East Exchange, $19,882 million; Hong Kong Stock Exchange, $11,215 million; Kam Ngan Stock Exchange, $17,615 million; and Kowloon Stock Exchange, $75 million. The total turnover of $48,787 million was 31.3 per cent higher than in 1983. The Hang Seng Index ended the year at 1 200.38 (July 31, 1964100), as compared with 874.94 at the end of 1983. The highest point reached during the year was 1 206.83, recorded on December 24.
The turnover on the Commodity Exchange in 1984 was: sugar, 167 524 lots of 50 long tons each; soyabeans, 372 352 lots of 30 000 kg each; and gold, 5 845 lots of 100 troy ounces each.
Trading in gold on the Chinese Gold and Silver Exchange Society was fairly active in 1984. Prices paralleled those in the other major markets of London, Zurich and New York, fluctuating between a high of $3,767 and a low of $2,803 per tael of 99 per cent fine gold. The price of gold loco London declined to US$308 at the end of 1984, from US$384 per troy ounce at the end of 1983.
Inflation
The rate of inflation, as measured by the increase in the Consumer Price Index (A), averaged 8.1 per cent in 1984. This represents a slowing down from 10.0 per cent in 1983 and 10.6 per cent in 1982. On a year-on-year comparison, the rate of increase slowed down