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competitors in the Asian Pacific region who can exploit cheaper
labor. Admittedly, the utilization of cheap labor in China by
Hong Kong's manufacturers and the economic benefits reaped from
China's economic reforms have alleviated the difficulties of Hong
Kong, but they are not enough at least in the short run
solve its problems.
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To further complicate its economic problems, the rate of
inflation in Hong Kong remained high in the past few years, and is
expected to hover at a high level in the near future. Both the
brain drain and the shortage of labor are factors accounting for
the high inflation rate. The gradual devaluation of the Hong Kong
dollar, which is linked with the weakening U.S. dollar, also
fuels the inflationary pressure in an economy highly dependent on
imports both for productive and consumption purposes.
The implication of economic downturn for a government whose
political legitimacy is heavily based on economic performance are
adverse. If poor economic performance continues for a longer
period of time, the myth that colonial governance and the
economic miracle of Hong Kong are organically linked will be
broken, and the value of the government to the people will be
downgraded.
Politicization of Society and Proliferation of Social Conflicts
Social change in Hong Kong in the post-war period has
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See Tasks for the 1990s: Implementing Hong Kong's Strategy for Building Prosperity (Hong Kong: Hong Kong Economic Survey Ltd., June 1990).
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