th
is also a surge in property investment which at least in part accounts for the emerging trade imbalance, most notably concentrated in the capital good sections.
6. Inflation developments look as if they closely follow those in Hong Kong, not surprising with a virtual fixed exchange rate and high import dependence. Higher services inflation than goods is also (as in Hong Kong) a relatively healthy sign of rising income and buoyant demand as well as an indication that monetary policy is entirely passive.
7. Finally, when I visted Macau at Easter I was struck how heavily the Macau economy depended upon the gambling industry. Basing future prosperity on gambling and its allied services is undoubtedly a risky strategy which relies almost entirely on maintaining a monopoly of provision for Hong Kong. I presume however there are no plans for this type of market liberalisation in Hong Kong!
Yours over, Chiv
CE Lane
Economic Advisers
cc Ms Hall, FED
OT2, DTI
Mr Stone, HKD WH304
Mr Lillie, PEKING
Mr Moakes APA, HKG
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