ENG-1983 — Page 82

THE ECONOMY

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on the same day. The Hang Lung Bank opened for normal business on the next day under government ownership with the Secretary for Monetary Affairs as the Chairman of the bank.

Interpretation of movements in the monetary aggregates was hampered by the diff- erential treatment for most of the year, for interest withholding tax purposes, of Hong Kong dollar and foreign currency deposits (it is still hampered by the differential treatment, for profits tax purposes, of interests from Hong Kong dollar and foreign currency deposits). Foreign currency deposits, which were exempted from the interest withholding tax with effect from February 25, 1982, continued to grow substantially, by 41 per cent in 1983, while Hong Kong dollar deposits, which were exempted only on October 17, recorded an increase of 13 per cent. Reflecting this, the Hong Kong dollar components of the money supply grew at much slower rates than their foreign currency counterparts. HK$M3, for example, grew by 13 per cent while total M3 grew by 24 per cent. However, a proportion of the foreign currency deposits represented swap deposits, where foreign currency deposits are matched by agreements to buy Hong Kong dollars at a predetermined price when the deposit matures. Such deposits should, for most analytical purposes, be regarded as Hong Kong dollar deposits. Further, as foreign currency denominated aggregates are reported in their Hong Kong dollar equivalents, part of the recorded increase in foreign currency deposits, and so in the foreign currency components of the various definitions of the money supply, reflects the valuation effect of a weaker Hong Kong dollar.

Affected by nervous political sentiment, the stock market was volatile in the second half of the year. Turnover on the four stock exchanges in 1983 was: Far East Exchange, $15,658 million; Hong Kong Stock Exchange, $7,238 million; Kam Ngan Stock Ex- change, $14,207 million; and Kowloon Stock Exchange, $61 million. The total of $37,164 million was 19.6 per cent lower than in 1982. The Hang Seng Index ended the year at 874.9 (July 31, 1964 = 100), as compared with 783.82 at the end of 1982. The highest point reached during the year was 1 102.64, recorded on July 21.

Turnover on the Commodity Exchange in 1983 was: sugar, 333 475 lots of 50 long tons each; soyabeans, 734 936 lots of 30 000 kg each; gold, 6 106 lots of 100 troy ounces each; cotton, no trading.

Trading in gold on the Chinese Gold and Silver Exchange Society was fairly active in 1983. Prices paralleled those in the other major markets of London, Zurich and New York, fluctuating between a high of $4,750 and a low of $3,030 per tael of 99 per cent fine gold.

During the year the international gold market in Hong Kong continued to grow. Dealings mainly take place in US dollars per troy ounce of 99.95 per cent fine gold, with delivery in London. The price of gold loco London declined from US$448 per troy ounce at the end of 1982 to US$384 at the end of 1983.

Inflation

In 1983 the rate of inflation, as measured by the Consumer Price Index (A), which is representative of the price increases faced by the relatively less well-off 50 per cent of households in Hong Kong, showed an increase of 10 per cent. Some factors were rather favourable. For example, externally, the rate of inflation in Hong Kong's major trading partners remained moderate; internally, domestic demand was not imposing much pressure on aggregate supply and hence on the general price level. However, the depreciation of the Hong Kong dollar during the first nine months of 1983 had an unfavourable in- fluence on the rate of inflation. Nevertheless, the adoption of the currency stabilisation measures in October will have a dampening effect on the rate of inflation in due course.