HARD LESSONS AND RADICAL REFORMS
almost a decade of high property prices, high inflation and escalating wages which had seriously eroded our competitiveness.
We have already seen interest rates edging down and stabilising. At year's end one-month HIBOR stood at 4.9 per cent, a big improvement on the 9.5 per cent at end-1997. Inflation was at an all-time low of 2.8 per cent for 1998 as a whole. Lower rentals and wages made it cheaper to do business in Hong Kong and the currency remained rock-solid, even in the aftermath of the massive speculative attack in the middle of the year.
While 1998 was one of the worst years on record, there is hope that sustained recovery will begin in the latter half of 1999. The Hong Kong that is emerging from the economic woes will be leaner, keener and more competitive as it embarks upon the new millennium.
The 1998 financial turmoil in Hong Kong revealed its real hero - the indefatigable Hong Kong people who could bear great pain and are determined to succeed despite adversity. Indeed, the hard work, skill, flexibility and entrepreneurial flair of Hong Kong's 6.8 million residents are some of the main reasons that we are the world's eighth-largest trading centre with a per capita GDP of about US$25,000 — the world's 15th highest in 1998. Times are tough but as the saying has it, 'when the going gets tough, the tough get going'. That aptly sums up the attitude of Hong Kong people.
With few exceptions, the government's policy of low, predictable and simple taxes has attracted business to Hong Kong and kept it here. While a survey by the Industry Department during the year indicated a drop of about 80 in the number of regional headquarters based here, only 11 actually left Hong Kong. The overall decline was mainly due to companies downsizing their presence, citing high operating costs and reduced business prospects as a result of the Asian financial turmoil.
The vast majority stayed in Hong Kong. Not surprisingly, the significant factor was our business-friendly environment, which includes clean government, access to information, the rule of law, our infrastructure, banking and financial facilities and our tax regime. These assets, no doubt, explain why the same survey revealed that 65 enterprises established new regional headquarters in Hong Kong in the same period. More than half of the companies responding to the survey considered that our overall attractiveness as a regional headquarters or regional office had improved or remained
more or less the same.
It occurs to me that as we seek to recover and rebuild from such a severe and sudden downturn, we should remember the reality of our image and look how far we have come. Just three decades ago, when most of Hong Kong's present population was yet to be born, we were embarking on our first cross-harbour tunnel.
Some things, of course, don't change. In 1965, the banking system experienced a crisis of confidence attributed to imprudent lending policies in small industry and over-development in real estate. Water supplies, airport extension, provision of roads, and expansion of the telephone network were some of the projects undertaken in 1969, when there were 10 phones for every 100 people. Today there are about 54 exchange lines and 42 mobile phones per 100 people and we are still trying to meet the demand for other services. From the 1960s, Hong Kong developed a legendary ability to make the most of adverse circumstances and usually to profit from them.
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