TNAG-2749-FCO40-3964-Economic-situation-in-Hong-Kong-1993 — Page 105

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Reference

12. An indicative calculation (Annex 2 table) suggests growth slowing to 10.1% this year and 6.9% next year. These figures are more conservative than Nomura (Hong Kong) which suggested 12% (1993) and 8.2% (1994). The projected change in demand this year is led by an investment slowdown beginning to take effect in the second half of the year (as the first half figures showed little change on the first half 1992) with a relatively sharp fall on the rapid growth seen in the second half of 1992. My guess is that total consumption will not slow in 1993, but ease back in 1994 as the slowdown spreads across the economy. Inflation would probably keep rising for most of 1993 and then fall back in 1994, but by no means as sharply as in 1989 when price controls were reimposed for some goods.

How will individual provinces be affected by a slowdown?

13. Looking back to the 1989/90 slowdown it is quite striking that its effects were fairly evenly spread at the provincial level. No province was insulated from the slowdown. Using national income growth data (similar to GNP which also includes depreciation and income from abroad) fast growing provinces like Fujian, Hainan and Guangdong stayed well above the national average whilst slow growth areas like Hubei, Tianjin stayed well below. Only Jilin and Liaoning had negative growth in 1989 or 1990 (see Annex 3).

14.

It is difficult to say how the pattern might differ this time round. Assuming average growth is higher than during the last slowdown (as projected above) it would seem unlikely for any province to have negative growth, barring any localised disasters such as flooding. Similarly unless there is targetted intervention to slow particular coastal provinces there seems little reason to suppose that fast growing coastal provinces will slip below the national average. In other words growth will remain fairly strong in the coastal provinces.

Impact on Hong Kong

15. We have not received any in depth analysis of the effects of a Chinese slowdown in Hong Kong, though Economic Services, HKG are currently working on a study. Summaries of scenarios by Hong Kong Bank and Nomura Research suggest that the main effects of the slowdown will be reduced exports to China

(largely excluding outward processing) which lower Hong Kong GDP growth by 0.5% in year one (from mid 1993) and 1.2% in year two from what I assume to be a base of 5%.

16.

There are also likely to be side effects in terms of a cooling of the property market and relatedly Chinese investment in Hong Kong.

Conclusion

17.

The evidence available to date suggests a relatively soft

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