CONFIDENTIAL
001407 MDHIAN 7810
FAILING TO STIR UP MUCH EXCITEMENT BY DENOUNCING MARTIN LEE AND SZETO WAH AS POSSIBLE EXCO MEMBERS, PEKING'S LOCAL PROXIES HAVE SENT CONFLICTING SIGNALS TO THE PUBLIC ON THE MERITS OF SEPARATING EXCO AND LEGCO. FOR ITS PART, THE COMMUNITY SEEMS GENERALLY AGREED THAT WE SHOULD NOT PROVOKE PEKING UNNECESSARILY BUT SHOULD GIVE THE CHINESE SIDE A PROPER OPPORTUNITY TO MAKE ITS VIEWS KNOWN.
THE ECONOMIC BOOST
8. PERHAPS THE STRONGEST POSITIVE ELEMENT IN THE PUBLIC'S MOOD IS THE BELIEF THAT THE ECONOMY WILL CONTINUE TO DO WELL. ACCORDING TO AN OPINION POLL PUBLISHED BY MING PAO AT THE END OF JULY, 76 PER CENT OF RESPONDENTS EXPECTED THEIR FINANCIAL SITUATION TO IMPROVE OR AT LEAST BE MAINTAINED DURING THE COMING YEAR. (THE FIGURE IN THE PAPER'S APRIL SURVEY HAD BEEN 73 PER CENT.)
9. THIS CONFIDENCE REFLECTS THE ECONOMY'S PERFORMANCE DURING THE
YEAR TO DATE. DESPITE SLUGGISH CONDITIONS IN MOST OF HONG KONG'S OVERSEAS MARKETS, FOREIGN TRADE HAS SHOWN NO LET-UP IN GROWTH. DURING THE FIRST HALF OF 1992, TOTAL TRADE ROSE BY 23 PER CENT COMPARED WITH THE SAME PERIOD LAST YEAR. DOMESTIC EXPORTS WERE VIRTUALLY FLAT (2 PER CENT GROWTH), AS THEY HAVE BEEN IN RECENT YEARS. BUT RE-EXPORTS, WHICH REFLECT HONG KONG'S NEW MANUFACTURING BASE IN GUANGDONG, ROSE BY 33 PER CENT.
GROUNDS FOR CONCERN
10. HONG KONG CANNOT HOPE TO INSULATE ITSELF ENTIRELY FROM THE BUSINESS PESSIMISM SO PREVALENT ELSEWHERE IN THE WORLD. THE COLLAPSE OF JAPANESE SHARE PRICES THIS YEAR, THE SEVERE DOWNWARD PRESSURE ON THE U.S. DOLLAR AND THE DELAYED RECOVERY OF THE WESTERN INDUSTRIAL ECONOMIES HAVE BEGUN TO RAISE QUESTIONS ABOUT HOW LONG HONG KONG CAN CONTINUE TO GENERATE SUBSTANTIAL CORPORATE PROFIT GROWTH. THE STOCK MARKET HAS FOUND IT DIFFICULT TO MAINTAIN THE EXUBERANT OPTIMISM OF THE FIRST HALF TO 1992. ON AUGUST 25, SHARE PRICES WERE 14 PER CENT OFF THEIR JULY PEAK, BUT STILL 23 PER CENT ABOVE THE LEVEL AT THE START OF THE YEAR.
11. AFTER DECLINING EARLIER IN THE YEAR, THE CONSUMER PRICE INDEX (A) ROSE BY 0.5 PER CENT FROM A LOW POINT OF 8.8 PER CENT IN MAY TO 9.3 PER CENT IN JUNE. JULY PROVED MORE REASSURING AS THE RATE
FELL BACK TO 8.8 PER CENT. THE LATEST CNTA POLL FOUND THAT THE PROPORTION OF RESPONDENTS WHO IDENTIFIED INFLATION AS A SIGNIFICANT ECONOMIC PROBLEM HAD DECLINED FROM 88 PER CENT IN
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