XN000022-1986-12-01 — Page 3

MONDAY, DECEMBER 1, 1986

LACK OF CONFIDENCE IN HK ECONOMY CLAIM REFUTED

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THE DEPUTY SECRETARY FOR ECONOMIC SERVICES, DR ALAN MCLEAN TODAY (MONDAY) REFUTED CLAIMS BY SOME COMMENTATORS THAT THE STATE OF INVESTMENT AND CAPITAL OUTFLOWS FROM HONG KONG WERE INDICATIVE OF A LACK OF LONG-TERM CONFIDENCE IN THE TERRITORY'S ECONOMY.

+DURING THE NEGOTIATIONS ON THE FUTURE OF HONG KONG, THERE WAS, NOT SURPRISINGLY, SOMETHING OF A WAIT-AND-SEE ATTITUDE ON THE PART OF THOSE WHO MIGHT OTHERWISE HAVE BEEN EXPECTED TO UNDERTAKE CAPITAL FORMATION IN HONG KONG.

+THIS WAS REINFORCED IN THE AREA OF REAL ESTATE DEVELOPMENT WHICH, IN ADDITION, WAS HAVING TO WORK ITS WAY CLEAR OF AN OVERSUPPLY OF PROPERTY ERECTED DURING A SUSTAINED BOOM IN THE LATE 1970'S AND EARLY 1980'S,+ SAID DR MCLEAN WHEN HE ADDRESSED THE PACIFIC BASIN ECONOMIC COUNCIL.

HE POINTED OUT THAT IN 1984 HOWEVER. ON THE BACK OF RAPID GROWTH IN DOMESTIC EXPORTS IN 1983 AND 1984, PRIVATE INVESTMENT IN PLANT AND MACHINERY INCREASED BY ALMOST 24 PER CENT TO AN ALL-TIME HIGH.

+WITH A SLOWDOWN IN THE ECONOMY IN 1985, INVESTMENT IN THIS AREA FELL SLIGHTLY, WHILE REMAINING AT AN HISTORICALLY HIGH LEVEL. A RECOVERY IN 1986 MEANS THAT THE PERIOD 1984-86 WILL HAVE BEEN THE BEST THREE CONSECUTIVE YEARS EVER FOR PRIVATE INVESTMENT IN PLANT AND MACHINERY IN HONG KONG, HARDLY AN INDICATION OF A LACK OF CONFIDENCE IN THE FUTURE OF THE ECONOMY, + HE SAID.

ON THE QUESTION OF CAPITAL OUTFLOWS, DR MCLEAN EXPLAINED THAT THERE WERE NO FIGURES COLLECTED ON CAPITAL MOVEMENTS IN OR OUT OF HONG KONG.

+HOWEVER, THE FIGURES WE DO HAVE FOR SOME OF THE COMPONENTS OF THE CURRENT ACCOUNT OF THE BALANCE OF PAYMENTS SUGGEST THAT THERE WAS A CURRENT ACCOUNT SURPLUS IN 1984 AND 1985, AND THAT THERE WILL PROBABLY BE A FURTHER SURPLUS IN 1986. IT CAN, THEREFORE, BE DEDUCED THAT THERE HAS PROBABLY BEEN A NET OUTFLOW OF FUNDS ON THE CAPITAL ACCOUNT.+

HE STRESSED THAT IT WAS IMPORTANT TO NOTE THE MOTIVATION FOR THE FLOW.

+IT CANNOT BE AUTOMATICALLY DEDUCED THAT, AN OUTFLOW, THERE IS LACK OF CONFIDENCE IN THE

BECAUSE THERE IS HONG KONG ECONOMY.+

HE CITED JAPAN AS AN EXAMPLE WHERE THERE HAD BEEN A LARGE AND SUSTAINED CAPITAL OUTFLOW FOR A NUMBER OF YEARS BUT FEW WOULD DE DUCE FROM THIS THAT JAPANESE RESIDENTS LACK CONFIDENCE IN THE FUTURE OF THE JAPANESE ECONOMY.

/DR MCLEAN