ENG-1988 — Page 88

66

THE ECONOMY

Commission authorised a total of 65 issues of negotiable certificates of deposit, of which 46 were fixed-rate issues. Most of the fixed-rate issues were authorised in the first quarter of the year. At the end of 1988 the total value of certificates of deposit outstanding amounted to $34 billion, the same as that a year ago.

The local stock market was less volatile in 1988 than in 1987. The Hang Seng Index moved within the range of 2 220 and 2 770 during 1988, ending the year at 2 687. The total volume of turnover for the year as a whole, at $200 billion, was much lower than in the preceding year, at $371 billion. In 1988, a total of 26 companies raised $2,487 million from the market by new share issues, 29 companies raised $6,280 million by rights issues, and another 32 companies raised $7,037 million by private placements. The total amount of funds raised during the year was thus $15.8 billion, substantially lower than the sum of $44.1 billion raised in 1987.

Trading in the market for Hang Seng Index futures contracts was subdued in 1988. The total turnover amounted to 140 000 contracts, well below the 3.61 million contracts re- corded in 1987. Trading in soyabean futures was boosted during the first half of the year by reports of a severe drought in the US Midwest, but became less active during the second half. In 1988, a total of 356 642 lots of soyabeans (30 000 kg each) were transacted. Trading in sugar and gold futures was more moderate, and their total turnovers were 201 461 lots (112 000 lbs each) and 1 984 lots (100 troy ounces each) respectively.

The price of loco-London gold fluctuated between US$394 and US$489 a troy ounce, while the gold price on the Chinese Gold and Silver Exchange Society ranged between $3,690 and $4,525 per tael. Turnover on the latter exchange totalled 59 million taels in 1988, compared with 64 million taels in 1987.

Consistent with the recovery in stock market activity after the crash, there was some revival of interest in unit trust and mutual funds in 1988. At the end of the year, the total number of unit trusts and mutual funds authorised in Hong Kong (including the various sub-funds of umbrella funds) stood at 563, compared with 504 at the end of 1987.

Inflation

The rate of consumer price inflation, as measured by the Consumer Price Index (A), averaged 7.5 per cent in 1988, having risen from the corresponding figure of 5.5 per cent in 1987. This rate of inflation was higher than the average annual increase of 5.4 per cent recorded over the last five years, but was still below the average of 8.9 per cent for the past decade. The pressure of demand on resources within the economy, the surge in world commodity prices earlier in the year, and the higher prices of goods imported from China have all contributed to the increase in inflation.

Among the various components of goods and services in the CPI(A), foodstuffs, services, and clothing and footwear recorded the most rapid increases in prices in 1988 over 1987. Their respective rates of increase were 9.6 per cent, 9.1 per cent, and 9.1 per cent. These three components together accounted for 77 per cent of the overall increase in the CPI(A).

Government's Involvement in the Economy

Economic Policy

Economic policy in Hong Kong is to a large extent dictated, and constrained, by the special circumstances of the economy. Owing to its small and open nature, the economy is vulnerable to external factors, and government actions designed to offset unfavourable external influences are of limited effectiveness. Further, the government is of the view that,