ENG-1997 — Page 96

THE ECONOMY

1997, save for a mild pick-up in the third quarter due to a temporary upsurge in vegetable prices caused by wet weather. The CPI(A), CPI(B) and Hang Seng CPI showed broadly similar movements. The GDP deflator, as a broad measure of overall inflation in the economy, rose by 5.9 per cent in 1997, faster than the 5.4 per cent increase in 1996.

Chart 12

12

Per cent

Main inflation indicators

(year-on-year growth rate in real terms)

10

00

8

6

2

0

Composite CPI

Consumer Price Index (A)

GDP deflator

QI Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 QI Q2 Q3 Q4 QI Q2 Q3 Q4 Q1 Q2 Q3 Q4

1996

1992

1994

1995

1993 Consumer price inflation moderated further in 1997.

1997

Economic Policy and Public Finance

56

Economic Policy

In July 1997, the reunification of Hong Kong with China took place smoothly under the 'One Country, Two Systems' concept. The Basic Law, which is the constitutional law of the HKSAR, gives solemn and inviolable legal protection for this concept. The Basic Law also stipulates that Hong Kong has the right to exercise a high degree of autonomy, and that Hong Kong shall adopt social, economic and political systems different from those in the Mainland. Hence, under the auspices of the 'One Country, Two Systems' concept and the Basic Law, the HKSAR shall continue to practise free enterprise and free trade, follow prudent financial management policies, keep a low and predictable tax system, uphold the rule of law, and maintain an efficient, executive-led government and a quality oriented civil service.

Hong Kong has long been renowned for its market-oriented economic policy. The law of the market is simple and clear: the fittest survives. Economic vitality is the key to maintaining competitiveness and creating rising prosperity. The invisible hand of market forces will drive the economy towards lower cost, higher efficiency, better quality, and therefore adding higher value to products and services. It is through the creation of more new jobs and new business opportunities that Hong Kong's people can continue to enjoy higher incomes and better standard of living.

The HKSAR Government will continue to play an important enabling role in providing a better environment for business in Hong Kong. This prime objective will work through: first, a business-friendly environment that encourages enterprises to