XN000022-1991-08-23 — Page 5

FRIDAY, AUGUST 23, 1991

THE DEMAND FOR LARGE FLATS SHOWED FURTHER

IMPROVEMENT.

THE

STABLE.

MARKET FOR SHOPPING SPACE HELD UP WELL PARTICULARLY IN THE PRIME SHOPPING AREAS, WHILE THAT FOR FACTORY PREMISES WAS GENERALLY THE MARKET FOR OFFICE SPACE, HOWEVER, REMAINED SOFT.

-

IN THE FINANCIAL SECTOR, THE FOLLOWING MAIN DEVELOPMENTS WERE OBSERVED DURING THE FIRST HALF OF 1991.

FIRST, WITH A VIEW TO DAMPENING INFLATIONARY EXPECTATIONS, LOCAL MONEY MARKET CONDITIONS WERE TIGHTENED AND INTEREST RATES RAISED BY ONE PERCENTAGE POINT IN LATE MAY. THE WIDER GAP BETWEEN THE HONG KONG DOLLAR INTEREST RATES AND THE CORRESPONDING US DOLLAR INTEREST RATES PUSHED THE MARKET EXCHANGE RATE OF THE HONG KONG DOLLAR TO A HIGH OF HK$7.714 TO US$1 ON JUNE 22. BUT TOWARDS THE END OF JUNE, IT MOVED BACK CLOSER TO THE LINK RATE OF HK$7.80 TO US$1.

THE OVERALL EXCHANGE VALUE OF THE HONG KONG DOLLAR, IN TERMS OF THE EFFECTIVE EXCHANGE RATE INDEX, ROSE FROM 109.3 AT THE END OF 1990 TO 114.1 AT THE END OF JUNE 1991.

SECONDLY, DOMESTIC LOANS AND ADVANCES REGISTERED A FAIRLY STRONG GROWTH DURING THE TWELVE MONTHS ENDING JUNE 1991, IN LINE WITH AN IMPROVED ECONOMIC PERFORMANCE. DURING THE SAME PERIOD, THE BROADEST DEFINITION OF THE HONG KONG DOLLAR MONEY SUPPLY (HK$M3) ROSE AT A RATE BROADLY COMPATIBLE WITH THAT OF NOMINAL GDP.

THIRDLY, LOCAL SHARE PRICES WERE GENERALLY ON AN UPTREND DURING THE FIRST FOUR MONTHS OF 1991. SHARE PRICES EASED IN LATE MAY, BEFORE SHOWING SOME RECOVERY TOWARDS THE END OF JUNE. THE STOCK MARKET WAS THEN BOOSTED CONSIDERABLY BY THE ANNOUNCEMENT OF THE MEMORANDUM OF UNDERSTANDING REGARDING THE NEW AIRPORT AND RELATED PROJECTS.

MR TANG SAID IN UPDATING THE GDP AND PRICE FORECASTS FOR 1991 IN THE LIGHT OF THESE DEVELOPMENTS, ADJUSTMENTS WERE MADE TO THE COMPONENT FORECASTS AS APPROPRIATE. THE UPDATED FORECASTS ARE SHOWN IN THE TABLE BELOW.

IN THE EXTERNAL SECTOR, CONTINUED GROWTH IN DEMAND IN MANY OF THE MAJOR MARKETS ARE EXPECTED TO SUPPORT HONG KONG'S DOMESTIC EXPORTS IN THE COMING MONTHS. HOWEVER, A STRONGER US DOLLAR COULD REDUCE THE PRICE COMPETITIVENESS OF HONG KONG'S PRODUCTS.

FURTHERMORE, ECONOMIC PERFORMANCE IN THE MAJOR INDUSTRIALISED COUNTRIES IS MIXED. TAKING THESE FACTORS TOGETHER, DOMESTIC EXPORTS ARE EXPECTED TO INCREASE BY 1.5% IN REAL TERMS IN 1991, WHICH IS MORE MODERATE THAN THE EARLIER FORECAST OF 2.5%.

ON THE OTHER HAND, THE FORECAST GROWTH RATE IN REAL TERMS OF

RE-EXPORTS IS REVISED UPWARD FROM 15% TO 19%.

THIS HAS

TAKEN INTO ACCOUNT THE ROBUST GROWTH IN RE-EXPORTS

IN THE FIRST HALF OF THE YEAR. WITH THE RENEWAL OF CHINA'S MOST FAVOURED NATIONS STATUS IN THE UNITED STATES BEING ALMOST CERTAIN, THERE SHOULD BE SUSTAINED GROWTH IN OUTWARD PROCESSING ACTIVITIES ACROSS THE BORDER, AND HENCE IN HONG KONG'S RE-EXPORTS INVOLVING CHINA.

/GIVEN A