10
HONG KONG
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BUILDING FOR THE FUTURE
appreciation of the Hong Kong dollar due to its link with the then very high US dollar. Despite these factors, the growth of the GDP was more than respectable in 1983 and 1984, at 6.5 per cent and 9.5 per cent respectively.
Of course, there were other elements operating at that time. The puncturing of the speculative boom in land not only led to a steep fall in land prices, but also to a massive drop in land sales, a factor which hit the government budget very hard and helped to drive it into deficit; and these developments were accentuated by the crisis of confidence sur- rounding the negotiations on the political future of the territory.
Nevertheless, the evidence shows that investment which reached a height of over $50 billion (at 1980 prices) in 1982, did not fall very much in real terms in the succeeding years. Its low point was just over $46 billion in 1985 and in every year it remained above its 1980 level, again in real terms. As another example, at its low in 1985, capital formation was still twice as big as in 1976. In other words, a great deal of capital investment was still being undertaken by both the public and private sectors during those difficult years.
The evidence for this was apparent on the ground. For instance, the new Hongkong Bank building and Exchange Square, among other large buildings in Central District, were erected during this period. The New Towns and Public Housing programmes continued, if anything at a more rapid pace. Among public buildings, the new Supreme Court and the Queensway Government Offices were constructed. The Island Line of the MTR was largely completed and, as already indicated, the construction of the new electric power stations continued apace. The road building programme also carried on, with the opening of, for instance, the Island Eastern Corridor to Shau Kei Wan and the Sha Tin to Tai Po coastal highway. It was a period of continuing investment for the future, without which the economy would not have been able to move back into double digit growth in 1986 and 1987.
The years 1986 and 1987 have, indeed, witnessed a very remarkable resurgence of growth, with the GDP increasing by almost 25 per cent in the two years combined. The major driving force was a boom in exports on the back of a depreciating Hong Kong dollar due to its link with the declining United States dollar. There was also a very large increase in trade, including entrepôt trade, with China and a significant increase in investment in plant and machinery. In contrast to the boom of the late seventies and early eighties, therefore, which was led by an expansion of internal demand, growth on this occasion was more externally led. Whatever the cause, however, the growth in output is, in turn, inducing a growth in capital investment which is beginning to put a strain on the capacity of the construction industry and is raising costs and contract prices.
The Balance Sheet
Hong Kong as an economy is completely open to world market forces and is guided by them in almost all its economic activities. Trade in the broadest sense is its lifeblood and it makes the goods or performs the services which, when sold in the world market, bring in the best profit. Likewise it buys what it needs from outside as cheaply as it can.
Hong Kong can only expand its economy and its purchasing power and standard of living, however, by increasing its own production of goods and services and their sophistication. This requires capital investment in all directions, from new buildings for factories, offices, shops, hotels and housing, new plant and equipment, and roads, railways, port and airport, water supplies, power stations, telecommunications and all the other basic infrastructure. It also calls for upgrading of the skills of the labour force through schools, colleges and other training facilities and for maintaining a healthy population well provided with hospitals and clinics.