THE ECONOMY
effect of the regional financial turmoil spread to the local economy. This notwithstanding, flat prices at end-1997 were still higher than a year earlier. The markets for office space and shopping premises also went from buoyancy to consolidation in the latter part of 1997. The markets for conventional flatted factory space and multi-purpose industrial premises remained generally slack during the year. Consumer price inflation moderated further in 1997. The Composite Consumer Price Index rose by 5.8 per cent and the Consumer Price Index (A) by 5.7 per cent in 1997, the lowest for 10 years. There was little price pressure from imported sources, owing to the sustained strength of the US dollar, generally soft world commodity prices and low inflation in the major supplier economies. Domestically generated inflationary pressures were largely contained even amid the buoyancy in the early part of the year. In general, the increases in labour wages and property rentals were not particularly rapid. In the latter part of the year, the economic slow-down further relieved inflationary pressures. Meanwhile, the GDP deflator, as a broad measure of overall inflation in the economy, rose by 5.9 per cent in 1997, somewhat faster than the 5.4 per cent increase in 1996.
Structure and Development of the Economy
The Hong Kong Special Administrative Region is strategically located at the doorway to the Mainland. It is also in the international time zone that bridges the time gap between Asia and Europe. Both attributes have reinforced Hong Kong's position as a global centre for finance, business and communications. Hong Kong is ranked the seventh-largest trading entity in the world. It operates the busiest container port in the world in terms of throughput, and the busiest airport in the volume of international cargo handled. It is the world's fourth-largest banking centre in terms of external banking transactions, and the fifth-largest foreign exchange market by turnover. Its stock market has Asia's second-largest market capitalisation. Hong Kong owes its strength to sound economic fundamentals, a large fiscal surplus and strong foreign exchange reserves, business-friendly government policies, a competent workforce complemented by a pool of efficient and enterprising entrepreneurs, a superb network of transport and communications infrastructure, a high degree of internationalisation, and open financial markets. Adding to these are a low taxation system, free and fair market competition, a fully convertible and stable currency, tight fiscal discipline, a well-supervised banking sector, sound monetary system and a comprehensive legal framework. The World Economic Forum ranks Hong Kong as the world's second most-competitive economy, while the US Heritage Foundation and Fraser Institute of Canada rank it the freest economy in the world. Hong Kong once again showed its resilience amid the financial turmoil that swept though the region in the latter part of 1997. The Hong Kong dollar has remained remarkably stable under the anchor of the linked exchange rate, while many other currencies in the region have all suffered sharp depreciation. Local interest rates have risen as the financial situation in the region remains unsettled, but those in the affected economies elsewhere in the region have risen higher with greater volatility. Stock markets in the region have all registered heavy declines, but the fall in the Hong Kong stock market was still smaller than in most of the region's other stock markets. Over the past 15 years, Hong Kong has weathered a number of shocks including the 1987 world stock market crash, the June 1989 incident in the Mainland, the Gulf War in 1990 and the Mexican currency crisis in 1994.