TNAG-2814-FCO40-4060-Future-of-Hong-Kong-International-Rights-and-Obligations-(IR-1993 — Page 27

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shortages and the structural evolution of its economy. The authorities firmly believe that the linked exchange rate system remains crucial to maintaining financial confidence, and hence the stability and prosperity of Hong Kong itself.

The establishment of the Hong Kong Monetary Authority will enhance monetary management and banking supervision by strengthening technical expertise and analytical capabilities. Commenting on the staff's observation of rapid rates of monetary and credit expansion this year, the authorities point out that although the interest rates have declined substantially along with those in the United States, the expansion in money supply was somewhat exaggerated by robust domestic stock market activity: money supply and credit growth figures were distorted by the large amount of subscription funds for new shares, which were tied up in the system. The year-on-year monetary growth rate has in fact slowed to around 13 per cent by the end of 1992, which is slightly lower than the forecast growth in nominal GDP for 1992 at around 15 per cent.

Inflation

While acknowledging that inflation remains a key policy issue, the Hong Kong authorities note that consumer price inflation has been on a moderating trend during most of 1992. For the year as a whole, the rate of inflation, as measured by the Consumer Price Index (A), averaged at 9.4 per cent, which was close to the original forecast of 9.5 per cent and represents a significant deceleration from the average of 12 per cent recorded in 1992.

In

The authorities are not complacent however and are, in particular, conscious of the need to tackle supply constraints on labour and land, January 1993, it was announced that the ceiling on the number of imported workers. permitted to work under the special labour importation scheme for the new airport and related projects will be raised from 2,000 to 5,500. This is in addition to the overall ceiling of 25,000 for the general labour importation scheme to alleviate shortages in particular skills.

In the residential property market, the anti-speculative measures, including the tightening of the banks criteria for providing mortgage finance, have already had some effect Speculation has cooled off in the second half of 1992 and apartment prices are currently under downward pressure in a relatively quiet market:In the medium- and longer-term the authorities will work to ensure an adequate supply of land through forward planning and programming and through maintaining flexibility with regard to usage control and the public disposal of land,

Other measures currently taken to combat inflation include promoting Increased efficiency in the public service; promoting greater competition in the private sector (e.g. in telecommunications and bus services); and investing substantially in education and training so as to raise labour productivity in the longer-term.