XN000022-1995-10-12 — Page 32

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Question (in Chinese): All along, I've felt that there are two ways the Government could use to immediately deal with livelihood issues and economic issues but I think it would be difficult for the Government to deal with that. One is the high land premium policy, the other is interest rate policy. Now, the high land premium policy has an impact on every aspect of our lives. I hope that on this issue the Governor would do something to cool-off the property prices. And secondly, on interest rate, that would be an immediate weapon to regulate our economy but because of our linked exchange- rate, so the Government is still rigidly refusing to make any change to that policy. But for any country, when there are economic problems, interest rates could always be a means to revive the economy. So, Mr Governor, I hope that you will be able to solve the bread and butter issues and the economic issues. One is the high land premium policy, the other is the interest rate policy.

Governor: Well, Mr Lau, you obviously study the business pages of the newspapers very carefully. Can I just say, on the interest rate policy, you are of course theoretically right that the link to the US dollar means that we can't use monetary policy, interest rate policy, in an orthodox way. On the other hand, we're not in an orthodox situation and I think the link to the dollar is an essential part of our financial stability and as far as I'm concerned there is no question it will stay until 1997, and I think the Chinese authorities have made it clear that it will stay afterwards. Because even more important than our ability to use monetary policy flexibly is our ability to see off anybody who is stupid enough to try to speculate against the Hong Kong dollar at any sign of political difficulty. So the link with the dollar stays, even though you are quite right to say that it slightly constrains our use of orthodox economic weapons.

On the question of property prices, we have to be very careful. I think we actually did pretty well, though you never get applauded for it, our excellent team in Planning, Environment and Lands, and in Housing. I think you have to be pretty careful about what you do in the property sector because if you push things too far, you fetch up with a real slump in property prices and nobody thanks you for that when people start discovering that they are living with what the economists call negative equity, when their mortgage is worth more than the value of their property. I think we managed successfully last year to dampen down the property market. We got prices back to where they were before the big surge in 1994, we got them back to the sort of 1993 level. That's where they are at the moment. The market is a bit soft but I think we did manage to take some of the heat out of things last year by taking pretty tough measures against speculators and by increasing the amount of supply.