XN000022-1995-11-08 — Page 33

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Cause of the slowdown

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So how should we respond to the slowing down in the pace of our growth rate? What is the root cause of the problems and what can and what should we do about them? The root cause is not some failure in our economic policies. The root cause of our slower growth is quite simply the fact that we are a part of the global and regional economy. When some of our major trading partners experience slower growth, our exports to those markets also decelerate, and trading profits are generally harder to make.

Also, our investment income from such economies tends to shrink. The less buoyant profits and earnings from outside then act to dampen consumption. Dampening consumption further is the now infamous "feel bad" factor, which stems from the earlier consolidation of our stock and property markets and the rise in the unemployment rate.

Of particular influence on our trade and income growth is the economic situation in China. The Chinese government has succeeded in trimming back the phenomenal economic expansion in the country over the past two years. A slower pace of growth has been fully justified to avoid aggravating the inflationary pressures and bottlenecks which the rapid development process inevitably brings.

We in Hong Kong must welcome the way in which the Chinese economy is now growing at a realistic but still impressive pace. This will ensure steadier and more sustainable growth over the longer term. In the meantime, we have to accept the implications for our own economic performance of the lowering of China's growth

rates.

Hong Kong has not been helped by the way in which China's austerity measures coincided with measured growth elsewhere in the world economy. In North America and Western Europe, governments have identified lower inflation and sustainable growth as their priorities. Growth rates for these important trading partners are likely to be some way below our own 5 per cent in the coming year. The fact is that the world's leading economies do not seek growth at any price. They do not believe in achieving the maximum possible rate of economic expansion. The shared goal among our principal trading partners is stability, stable prices in particular. And growth trends which can be maintained over a reasonable period of time.