ENG-1996 — Page 79

THE ECONOMY

Labour market conditions improved during the year. In the fourth quarter of 1996, the seasonally adjusted unemployment rate was 2.6 per cent, down from the peak of 3.6 per cent in the three months ending November 1995. As manpower utilisation intensified, the underemployment rate also eased, to 1.6 per cent in the fourth quarter of 1996 from the peak of 2.5 per cent in the third quarter of 1995. The improvement was underlined by a broad-based strengthening in labour demand in 1996. Although labour supply still recorded a notable growth during the year, underpinned by substantial inflows of returnees, incoming expatriates and Chinese immigrants, total employment rose even faster. As a result, the overall balance of supply and demand in the labour market tightened. Labour earnings in most of the major sectors continued to increase both in nominal and in real terms.

The residential property market showed a marked pick-up, with active trading in 1996. Apartment prices rose substantially during the year. The sales market for office. space also showed a notable revival, but the rental market remained generally soft. Shopping premises in popular locations had an improvement in sales, while rentals bottomed out in the latter part of the year. Activity in the industrial property market however remained subdued. Prices and rentals continued to decline.

The GDP deflator, as a broad measure of overall inflation in the economy, showed an increase of 5.3 per cent in 1996, compared with a 2.4 per cent increase in 1995. Consumer price inflation, measured in terms of the Consumer Price Index (A), rose by 6 per cent in 1996, considerably slower than the 8.7 per cent increase in 1995. Inflationary pressures from both domestic and imported sources moderated over the year. Export prices were broadly stable, while import prices eased.

Structure and Development of the Economy

Hong Kong, a small territory inhabited by more than six million people, is probably one of the most densely-populated urban economies in the world. With virtually no natural resources, Hong Kong has a deep-water harbour and is strategically located on the international time zone that bridges the time gap between Asia and Europe. It is also characterised by its proximity to China and strong traditional links with the South-East Asian economies.

A low tax environment, free and fair market competition, a sound legal and financial framework, a fully convertible and secure currency, a highly efficient network of transport and communication and, not least, a competent workforce working along with a pool of enterprising entrepreneurs are all precious assets of Hong Kong. These together have contributed to the success of the Hong Kong economy.

Hong Kong is now ranked the eighth-largest trading entity in the world. It operates the busiest container port in terms of throughput. Its airport is the third-busiest in terms of the number of international passengers and the second-busiest in terms of the volume of international cargo handled. It is also the world's fifth-largest banking centre in terms of the volume of external banking transactions, and the fifth-largest foreign exchange market in terms of turnover. Its stock market is Asia's second- largest in terms of market capitalisation. All these show that Hong Kong has firmly established itself as a major international trade and financial centre. Hong Kong owes its strength to business-friendly government policies, sound economic fundamentals, high degree of internationalisation and cultural openness. On these

47