Hong Kong: Lassitude rules as economy sinks

When Britain packed its bags and left Hong Kong, the general expectation was that the post-colonial regime would be preoccupied by political problems. Instead, it is becoming overwhelmed by an economic crisis. But, as Stephen Vines reports, the people who run the government are showing few signs of recognising the gravity of the situation.

A sharp recession is already starting to take its toll on Hong Kong, but in government circles there is a pervasive sense of smug complacency.

An opinion poll conducted last week showed a sharp dip in public confidence in the economy. Last summer more than 80 per cent of those polled were expressing confidence. The recent poll showed that 60 per cent still felt able to remain optimistic. This is a low figure by Hong Kong standards, because people here tend to be resolutely bullish.

The reasons for pessimism are not hard to find, although official statistics have yet to reflect the problems. Carrie Lee, who runs a stationery business, said: "We just sit around at the moment, waiting for the phone to ring. Everyone is being very careful; they don't even want to spend money on paper." The owner of a hitherto successful graphic-design business said he had cut staff and moved the rest of the business into one floor. He used to occupy three. "After October business just dried up; our cash flow disappeared. I've never seen it so bad."

Even in the financial sector, where bumper bonuses were the order of the day, lay-offs are gathering pace: one large investment house has laid off a third of its staff. A slump in tourism, one of Hong Kong's biggest currency earners, is producing redundancies in hotels and restaurants. The Japanese owned Yaohan department-store chain, one of the biggest in the territory, has gone into liquidation, throwing 1,000 people out of work.

A newspaper poll yesterday showed 75 per cent of employees surveyed feared they would lose their jobs. Interest rates are rising to historically high levels as a result of what is increasingly looking like a panicky reaction by the monetary authorities to counter speculation against the local currency. This is squeezing the business sector and causing pain for holders of modest home loans.

The property market has responded rapidly to the interest-rate rise, with transactions practically grinding to a halt and prices plunging by as much as a third. A medium-sized estate-agent chain went into liquidation.

In these circumstances the administration might have been expected to show some appreciation of the problem.

But Tung Chee-hwa, the Chief Executive, keeps reiterating that "everything is fine".

Sir Donald Tsang, his financial secretary, recently predicted "the dust might settle down by Christmas". He refuses to admit that the economy is in decline and sticks to his forecast of 5.5 per cent growth for the coming year.

This is treated with incredulity by some local economists. The conservative Hang Seng Bank, for example, is predicting growth of no more than 4 per cent. Sir Donald's target could be met only by an infusion of Keynesian- style government intervention, which would probably mean a massive public- housing construction splurge, which would lead to high inflation, raising Hong Kong's already high prices.