THE ECONOMY
In the residential property market, sentiment was generally weak during most of 2001. Notwithstanding substantially reduced mortgage rates and improved affordability, buying interests were restrained by concern over job security and income instability, and by the ample supply of new flats in the pipeline. Then towards the end of the third quarter, sentiment was dampened further by the shock from the September 11 incidents. In a move to boost sales, property developers stepped up their promotion by offering more attractive purchase terms and more flexible financing packages. As a result, trading in the primary market turned more active towards the year-end, but the secondary market remained largely quiet.
On consumer prices, there was a continued fall in the Composite Consumer Price Index (Composite CPI), averaging at 1.6 per cent in 2001, although this was smaller than the 3.8 per cent drop in 2000. Some resurrection of domestic price pressure was apparent in the early part of the year. Yet as the local resource balance loosened again amidst the economic slowdown, the price pressure subsided thereafter. In December, public housing cost came down sharply, owing to the waiver of public housing rentals. External price pressure concurrently eased, with import prices showing an enlarged decline over the course of the year. The year-on-year decline in the Composite CPI, having narrowed from 2.0 per cent in the first quarter of 2001 to 1.3 per cent in the second quarter and further to 1.0 per cent in the third quarter, widened again to 2.1 per cent in the fourth quarter.
Structure and Development of the Economy
With its strategic location at the doorway to the Mainland and on the international time zone that bridges the time gap between Asia and Europe, the Hong Kong Special Administrative Region has been serving as a global centre for trade, finance, business and communications. Hong Kong is now ranked the ninth largest trading entity in the world. It operates the busiest container port in the world in terms of throughput, as well as one of the busiest airports in terms of number of passengers and volume of international cargo handled. In addition, it is the world's 10th largest banking centre in terms of external banking transactions, and the seventh largest foreign exchange market in terms of turnover. Its stock market is Asia's second largest in terms of market capitalisation.
Hong Kong is characterised by a high degree of internationalisation, business- friendly environment, rule of law, free trade and free flow of information, open and fair competition, well-established and comprehensive financial network, superb network of transport and communications infrastructure, sophisticated support services, and a well-educated workforce complemented by a pool of efficient and enterprising entrepreneurs. Added to these is the substantial amount of fiscal reserves and foreign exchange reserves, a fully convertible and stable currency, and a simple tax system with low tax rate. On these virtues, Hong Kong is widely regarded as amongst the freest and most competitive economies in the world. The US Heritage Foundation ranks Hong Kong as the world's freest economy for the eighth year in a row in 2002. The Cato Institute in the United States, in conjunction with 50 independent research institutes in other countries, also rank Hong Kong as the freest economy in the world. The World Economic Forum, based in Switzerland, ranks Hong Kong as the third most competitive economy in Asia and the 13th in the world. Over the past two decades, the Hong Kong economy has more than doubled in size, with GDP growing at an average annual rate of 5.0 per cent in real terms. This
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