TNAG-1942-FCO40-2768-Internal-economic-situation-in-Hong-Kong-1989 — Page 25

EMBARGOED UNTIL 2.00 P.M. ON WEDNESDAY, 6TH SEPTEMBER

Speech by Mr. W.M. Sulke, OBE, JP to the Hong Kong Exporters' Association on the 6th September 1989 at the New World Hotel

HONG KONG'S BUSINESS BEFORE AND AFTER 1997

I have been asked here to make a speech about how business, and presumably in view of this venue, especially how Hong Kong's manufacturing and export business, may be affected before and after 1997. That was the somewhat flattering request. Unfortunately however, much as I polish my crystal ball, all I can see is a distorted reflection of myself. So I will have to base my forecast on my somewhat limited knowledge of politics and economics.

Since I started business here 40 years ago my track record on economic forecasting hasn't been too bad. I have always followed the precepts of "balanced pessimism" (a pessimist is an optimist with experience) on the basis that one may lose a bit if one doesn't plan for the most optimistic scenario and then finds that even that optimistic scenario is exceeded, but one won't lose quite so much when the most pessimistic scenario comes true. turn is based on the precept that it is never wrong to take a profit and that although "Shanghai losses" hurt one's pride, real losses hurt considerably

more.

As usual, we have to live with the four year pay back, if you can't get 25% per annum on your investment, if you can't get your money back in four years, don't do it (this is a good rule not just in Hong Kong!). I suppose some might stretch it to 20% per annum, so if you invest in 1990 you would get your money back by 1995. But there is, however, a joker in that equation, namely, will the buyer still be around by 1995? Since I am talking to exporters to answer that question we will have to look at the world economic picture, and I must say that doesn't look too rosy at the moment. The law of averages states clearly that after boom must come bust, and however euphemistically all and sundry are talking about a soft landing, they are, in fact, talking about coming back down to earth. And although a hard landing could be nasty, a soft landing isn't going to be a picnic either, especially not for us here so completely dependent on our big export markets. In addition to that we have a Government who seems to be unable to deal with our own economic problems, allowing a crippling labour shortage and a double digit inflation which will increase exporters costs and may well make them lose ground against our very competitive near neighbours, especially the up and coming countries like Thailand. Also, those of you who, like me, are in the export business to China are obviously going to have a very difficult time. Although there is a silver lining in that usually when things get really tough in China, all those very large manufacturers who think they can do everything themselves in China decide that after all perhaps they should have help from the likes of us in Hong Kong!

I don't want to sound like Joseph in the Bible, but I think it is time for all of us to prepare for that famous seven lean years, and I don't have to tell you that what we all have to do is become leaner, hungrier, much more competitive, much more hitech, and use all our influence with our present Government to raise them from their present lethargy. Because what I have said about the need for us to get leaner and hungrier goes double for our very expensive, over expanded, and in many instances, inefficient Civil Service and the lack of Government action to control and reduce our inflation.

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