TNAG-1766-FCO40-2520-Hong-Kong-Budget-Appropriation-Ordinance-1988-(No.-23-of-198-1988 — Page 29

Mills.

HOWARD TRACY ESQ

BOTB

RM.

309

NXONLIGHT OF THE 1988/89 HONG KONG BUDGET

Överview: Buoyant Economy for the Past Two Years and

Good Inmediato Prospecta

Hong Kong experienced the second consecutive year of double-digit economic growth in 1987, with robust expansion in total exports, substantial increase in capital investment, historic low level of unemployment, and a moderate rise in inflation. Government surplus hit another record high, thereby providing room for easing tax burden and increasing expenditure on public services, in particular services relating to the manufacturing industry, while prudently maintaining the Government's reserves.

Given that the economy will still be operating at near full capacity, the overall budgetary package could well provide a stimulus to the economy in 1988, which is expected to grow at a moderate 5% in real terms, implying a per capita GDP of about US$9,200 at current prices.

1937 Economy: Remarkable Performance

The strong export-led growth continued through 1987, with a remarkable 13.6% real growth rate in ODP; total exports surged by 37% in money terms. Such buoyant market conditions have led to a substantial real increase (15.2%) in capital investment and an active property market. Meanwhile, unemployment rate stayed at a historic low level of 1.8% during much of 1987, while wages and salaries rose rapidly; the community at large shared in the fruits of Hong Kong's economic success.

Overall, the visible trade account was roughly in balance, due to a rapid rise in imports, in line with the strong economic growth. The Financial Secretary says Hong Kong is "a free trader in the full sense of that tern" and there is no justification whatsoever for a change in the linked rate. He reasures that the Government has no intention of altering the current rate as it is vital to Hong Kong's stability and provides a mechanism for monetary control.

Inflation crept up over the course of 1987, but remains fairly moderate by historical standard at an average rate of 5.5%, partly reflecting the weakening of the Hong Kong dollar against most other major currencies, and the high liquidity and demand pressure within the economy. And with the economy operating at full capacity, local producers have made signicantly more use of outward processing activities in China. This increased inter-relationship of the economy with that of China was a marked feature of last year and seems likely to continue in 1988.

As regards last October's sharp falls in Hong Kong's stock market, the Financial Secretary attributed it in part to a response to world events, rather than a reflection of weaknesses in the economy. Nevertheless, Rong Kong's systems were shown to be less than adequate, and steps, pending the recommendation of the Securities Review Committee, should be taken to further protect investors.