The stock market in Hong Kong has been hitting its highest levels for a year now that the island is emerging from its post-Sars depression helped by signs of a US recovery, but there is a long way to go.
"The stock market is no better than betting on the horses. Without reform the outlook seems pretty bad," a British financier David Webb said. "The lead we had over mainland China is being rapidly eroded."
He adds that Hong Kong's secretive tycoons - whom many blame for leading Hong Kong into its worst economic and political crisis in half a century - must be challenged.
At the time of the handover there was a labour shortage but now unemployment has hit 8.7 per cent. The free-spending Japanese and Americans are not coming back and soon the poor relations in China will make up half the annual visitors.
"Oh yes, they have a lot of money these days," Mr Yip, the waiter at the Repulse Bay beach restaurant, said. Before the bust, Mr Yip ran his own seafood import company but like so many other businesses in Hong Kong it went under. His restaurant still flies in fresh Irish rock oysters, red Tasmanian lobsters and mottled South African galoupa fish, but the days of high consumption are past. Consumer spending has been falling for 57 months in succession.
The crash came during the Asian financial crisis which started just months after the handover when Hong Kong refused to follow the other tiger economies into devaluing.
The new government of Tung Chee-Hwa then directly intervened by propping up the collapsing share market using government money to become the biggest shareholder in the territory's leading companies.
When property prices began to fall, he stepped in to restrict land sales and abandoned a promise to build 80,000 new homes a year.
Taxes are low in Hong Kong because the government derives much of its budget revenues from land sales. But because China feared the British would ransack the territory before they left, they insisted that Britain should strictly limit land sales before the handover.
This drove up prices creating a fantastic bubble that made housing unaffordable to most people. So Mr Tung sought to gain popularity by promising to build more subsidised housing to create more home owners.
"When he made this sudden U-turn, the only ones who gained were the property tycoons," said Mr Webb.
Hong Kong's rigged property market turned developers such as Li Kashing into some of the richest people in the world and with their fortunes they also dominate the stock market and almost everything else in the territory. Mr Tung is elected by an electoral college dominated by these big magnates and as the territory has lurched deeper into recession, he has found himself running a deficit which has ballooned so alarmingly that Hong Kong's credit rating has been cut.
Even though property prices have plummeted, they are still outrageously high, pushing up wages and retail prices. A small two-bedroom flat costs Mr Yip 35,000 Hong Kong dollars (£3,000) to rent per month.By trying to cushion the fall as much as possible, Mr Tung has created an exodus in the job market. The lucky Hong Kongers cashed out before the handover and emigrated to Canada, America, Australia or Britain. Now a second exodus of professional Hong Kongers is under way as they migrate in search of better opportunities in Shanghai.
Not surprisingly, those left behind, many of them caught up in an equity trap where their property is worth less than their mortgages, are furious and deeply suspicious of Mr Tung's attempts to delay direct elections and ram through an anti-subversion law which would stifle any criticism of his government and the Chinese Communist Party.
Somehow the Sars crisis, the government's mishandling of it, came to symbolise all the ills plaguing Hong Kong. And of course, it has dented hopes of relying on high-spending visitors to resuscitate demand.
A great deal of soul searching is going on about what should be Hong Kong's new role. The Japanese management guru Keniichi Ohmae advised the Hong Kong government last week to make it some sort of Monaco or offshore banking and investment centre so mainlanders will come and buy property or shares.
Hong Kong is already trying to make this happen but it always felt it had a higher destiny, by relying on its superior legal infrastructure and accountancy standards to become China's premier financial centre.
Mr Webb, who spent years working as financial adviser for one of the big Hong Kong companies before setting up his own investment fund, thinks this reveals a dangerous complacency. Most Hong Kong listed companies, he says, are family businesses run for the benefit of the owners not the shareholders.
"That's why there are no hostile takeovers, no outside discipline. Without independent directors on corporate boards, the owners don't care about the reputation or the price of their shares," he said.
He turns up at AGMs and questions how things are done. How much are the directors being paid? Why is the company so slow to disclose its accounts?Are they diluting the shareholding?
He has managed to organise a dozen shareholder revolts which have bolstered his campaign to improve the financial supervision and corporate management. This month Hong Kong announced it was going to introduce quarterly reporting but as Mr Webb said this is more than a year after Shanghai did so.
"China is tightening up its rules and by the time they lift capital controls there, in say in five to 10 years, Hong Kong must be a lot better than it is, or it will left behind as a sleepy financial backwater," Mr Webb said.Reuse content