XN000022-1991-05-29 — Page 7

WEDNESDAY, MAY 29, 1991

9IR

A

PIERS SAID THERE WAS THE SAME DEVIATION IN JUNE 1989 AS RESULT OF EVENTS IN CHINA AND IN THE SECOND QUARTER OF 1990 AS A RESULT OF SIMILAR DELIBERATE EFFORT TO SLOW DOWN CREDIT EXPANSION IN HONG KONG.

WHILE SIR PIERS SAID THE ADMINISTRATION RECOGNISED THE EXTENT OF PUBLIC CONCERN AND THAT THE GOVERNMENT HAD NO HESITATION IN SUPPORTING THE MOTION, HE WAS QUICK TO ADD THAT IN SO DOING, THE GOVERNMENT MUST EXAMINE WHAT HAD GIVEN RISE TO THE INFLATIONARY PRESSURES IN ORDER THAT IT COULD JUDGE WHETHER THE MEASURES IT INTENDED TO TAKE WERE LIKELY TO BE EFFECTIVE IN TACKLING THE PROBLEM.

"WE MUST RECOGNISE THAT SOME COURSES OF ACTION, WHILST SUPERFICIALLY ATTRACTIVE, CAN HAVE NEGATIVE EFFECTS IN THE LONGER TERM, HE SAID.

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THE FINANCIAL SECRETARY CAUTIONED THAT THE GOVERNMENT WOULD BE DOING A DISSERVICE TO THE COMMUNITY IF FOR THE SAKE OF SHORT-TERM GAINS IT WAS TO INFLICT LONG-TERM DAMAGE ON THE ECONOMY.

HE ALSO EXPLAINED THE PRINCIPAL CAUSES OF THE PRESENT HIGH INFLATION RATE.

QUITE SIMPLY HE SAID, THE CURRENT HIGH INFLATION RATE WAS LARGELY THE RESULT OF OVERALL DEMAND OUTSTRIPPING SUPPLY.

H

WHAT WE ARE NOW FACING IS THE PRICE TAG FOR THE PERIOD OF RAPID ECONOMIC GROWTH," HE SAID.

SIR PIERS SAID INFLATION DID EASE SLIGHTLY AFTER THE MIDDLE OF 1989, FOLLOWING THE SLOW-DOWN IN ECONOMIC GROWTH.

THIS ADJUSTMENT WAS, HOWEVER, OFFSET BY THE OIL PRICE HIKE BROUGHT ABOUT BY THE GULF CRISIS SO THAT, FOR LAST YEAR AS A WHOLE, THE CONSUMER PRICE INDEX (A) ROSE BY 9.8 PER CENT EVEN THOUGH THE GDP GREW BY ONLY 2.4 PER CENT, HE SAID.

IN FACT, SIR PIERS POINTED OUT, THE ECONOMY HAD BEEN ADJUSTING TO THE PRESSURE OF DEMAND ON ITS OWN CAPACITY, BUT ONLY VERY SLOWLY.

"THE REASON FOR THIS IS LARGELY BECAUSE OF THE FACT THAT THE ECONOMY ITSELF HAS BEEN UNDERGOING A PROCESS OF CONTINUOUS STRUCTURAL CHANGE AS IT BECOMES MORE SERVICE ORIENTED," HE SAID.

THIS PROCESS, HE ADDED, NECESSITATED A REDISTRIBUTION OF RESOURCES DURING A PERIOD WHEN THOSE RESOURCES, PARTICULARLY LABOUR, WERE ALREADY IN SHORT SUPPLY.

SAID.

"AND THAT GIVES RISE TO ADDITIONAL INFLATIONARY PRESSURES,

++ HE

IN THIS CONNECTION, SIR PIERS SAID THERE WERE A NUMBER of ADDITIONAL FACTORS THAT WERE RELEVANT.

FIRST, THE GROWTH IN OUTWARD PROCESSING ACTIVITIES IN GUANGDONG GREATLY EXPANDED HONG KONG'S PRODUCTIVE CAPACITY WHILST HELPING MANUFACTURERS KEEP COSTS DOWN.

HAD

/CONSEQUENTLY, HE