ENG-2000 — Page 75

THE ECONOMY

Yet the residential property market remained largely in the doldrums. In the first half of 2000, sentiment was much overshadowed by the successive interest rate rises, as well as the weak demand against an abundant supply of new flats coming on stream. Clarification of the policy configuration on housing by the Government boosted activity in July and August. But the market quietened down again in the ensuing months, amidst the correction in the local stock market and renewed concern about the large supply of flats. For 2000 as a whole, flat prices fell distinctly further, while flat rentals were generally stable.

Consumer prices continued on a decline in 2000. But with reduced price discounts at the retail outlets upon a stronger consumer demand, and with the downward adjustments in wages and rentals dissipating, the rate of decline in consumer prices narrowed progressively in the latter part of the year. Also relevant to this trend was the gradual firming up in import prices. For 2000 as a whole, the Composite. Consumer Price Index (CPI) on average recorded a 3.7 per cent fall, less than the 4.0 per cent decline in 1999. By the fourth quarter of 2000, although the Composite CPI on a year-on-year comparison still fell by 2.2 per cent, on a seasonally adjusted quarter-to-quarter comparison it had already reverted to a 0.2 per cent increase.

Structure and Development of the Economy

Backed by its strategic location at the doorway to the Mainland and on the international time zone that bridges the time gap between Asia and Europe, the Hong Kong Special Administrative Region (HKSAR) has been serving as a global centre for trade, finance, business and communications. Hong Kong is now ranked the 10th largest trading entity in the world. It operates the busiest container port in the world in terms of throughput, and also one of the busiest airports in terms of both the number of passengers and volume of international cargoes handled. At the same time, it is the world's 10th largest banking centre in terms of external banking transactions, and the seventh largest foreign exchange market in terms of turnover. Its stock market is the second largest in Asia in terms of market capitalisation.

Hong Kong is characterised by its high degree of internationalisation, business- friendly environment, rule of law, free trade and free flow of information, open and fair competition, well-established and comprehensive financial network, superb network of transport and communications infrastructure, sophisticated support services, and a well-educated workforce complemented by a pool of efficient and enterprising entrepreneurs. Added to these are the substantial amount of fiscal reserves and foreign exchange reserves, a fully convertible and stable currency, and a simple tax system with low tax rate. On these virtues, Hong Kong is widely regarded as amongst the freest and most competitive economies in the world. The US Heritage Foundation ranks Hong Kong as the world's freest economy for the seventh year in a row in 2000. The Cato Institute in the United States, in conjunction with 53 independent research institutes in other countries, also ranks Hong Kong as the freest economy world-wide. The World Economic Forum rates Hong Kong as the second most competitive economy in Asia and the eighth in the world.

Over the past two decades, the Hong Kong economy has almost tripled in size, with GDP growing at an average annual rate of 5.4 per cent in real terms. This outperformed the growth of the world economy as well as that of the Organisation for Economic Co-operation and Development (OECD) economies. Per capita GDP in Hong Kong has more than doubled in real terms, equivalent to an average annual

43

Page 75Page 76