recession
Hong Kong complicated by politics
Our correspondent in Hong Kong reviews the Colony's experience in 1982. Despite the impact of e world recession he sees good prospects in the short and medium term. Longer term, he provides an interesting discussion of the uncertainties created by China's intention of assuming Sovereignty once the British lease runs out.
Hong Kong has had to cope with two nasty jolts in 1982 which cast doubts on its role as the pace setter among free market economies.
Firstly, the world recession, delayed in its impact for longer than many had thought possible, finally caught up with the Hong Kong economy. Secondly, Mrs Thatcher visited Peking and raised with the Chinese authorities the question of the future status of the Crown Colony. What the People's Republic had to say on this matter was not entirely to the taste of many of Hong Kong's population.
Had the two events not coincided, Hong Kong might have coped rather better. Nevertheless, Financial Secretary John Brembridge was able to report real growth for 1982 of 2.4 per cent, and as late as December, unemployment was running at no more than 4 per cent of the labour force. Taken in a world context, neither figure is unimpressive, but a closer examination of the trends behind these figures, and their likely effects, did not give too much cause for encouragement. Exports were down in real terms by three per cent, and even the buoyant re-export trade, that had surged by an average 24 per cent per annum (real) in recent years, slowed. Consumer spending grew by only two per cent and investment in real terms was static.
Government spending
Much of the growth that did occur could be contributed in one form or another to Government
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spending, although the Financial Secretary did not take pains to stress the point. The most impressive area of growth was construction and civil engineering, up 10 per cent (real) and much of this was the result of Government initiated projects rather than private sector developments.
Furthermore the fall-off in property values that had been gathering momentum for some eighteen months, finally caught up with the Government's own revenue, which had become over-reliant on windfall income from land sales. For only the fourth time since World War II, the Government was obliged to post a deficit, with the prospect of a further deficit for 1983/4.
Mr Brembridge was confident that the Territory could stand two years of deficit, and refused to be panicked into hefty increases on profits and salaries taxes. He did, however, introduce a number of swingeing increases in indirect taxes, aimed principally at the smoker, the drinker and the motorist. He also brought in a particularly controversial increase of 400 per cent on the departure tax levied at Kai Tak airport, thus making Hong Kong's airport tax one of the most expensive in the world. His package finally included safeguards against unrestrained growth in public sector spending.
In the normal course of events, Mr Brembridge's planning would probably have been sound. At the time of his February 23rd budget signs were emerging that the US economy was well on the way to recovery, hopefully with the rest of the Free World trailing in its wake; thus, Hong Kong seemed to enjoy a degree of export led growth during 1983, with rather better prospects ahead. The Financial Secretary assessed such growth for the year at 4 per cent in real terms. However, as the end of second-quarter 1983 approaches, it is not clear beyond doubt that Mr Brembridge's hopes are working out as planned.
Patchy picture
Hong Kong has experienced a healthy growth in
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