COUNTRY REPORT Hong Kong Macau At a glance: 2001-02 OVERVIEW The increasing number of protests by various disgruntled interest groups in recent months indicates the potential for increased social discontent, which has remained low-key in recent decades. Tung Chee-hwa’s five-year term of office as chief executive ends in 2002. As he is not directly elected, it is conceivable that he will be returned for a second term even if his current unpopularity is maintained. Real GDP is estimated to expand by 9.7% in 2000, before slowing to 4.8% in 2001 and 4.5% in 2002. After falling by an estimated 3.4% in 2000, consumer prices are expected to start recovering in 2001, rising by 2.3% in 2001 and 3.7% in 2002. The Hong Kong dollar will remain fixed to the US dollar. The current-account surplus is expected to narrow in 2001-02, with the surplus likely to total around US$0.8bn (0.5% of GDP) and US$0.4bn (0.2% of GDP) in 2001 and 2002 respectively. Key changes from last month Political outlook • Speculation is growing that the administration will enact the Basic Law Article 23 provisions, which require the SAR “on its own” to legislate against treason, subversion, sedition and secession. This would undermine press freedoms in the territory. Economic policy outlook • Competition and competitiveness issues have dominated much discussion in the press and among business and government officials over the past quarter, and look set to continue. Pressure for either comprehensive competition policy laws or more active sectoral laws to regulate competition is increasing. Economic forecast • Strong real GDP growth of 10.4% year on year in the third quarter of 2000 has led us to revise upwards our forecast for growth in 2000 to 9.7%. • As a result of the continued weakness of consumer prices, we have revised downwards our forecast for consumer price deflation to 3.4% in 2000. 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ISSN 0269-6762 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK 1 Contents 3 Summary Hong Kong 5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2001-02 8 Political outlook 9 Economic policy outlook 10 Economic forecast 14 The political scene 19 Economic policy 22 The domestic economy 22 Output and demand 23 Employment, wages and prices 25 Financial indicators 27 Sectoral trends 29 Foreign trade and payments Macau 32 Political structure 33 Economic structure 33 Annual indicators 34 Outlook for 2001-02 34 Political outlook 34 Economic forecast 36 The political scene 37 The domestic economy and economic policy List of tables 11 Hong Kong: international assumptions summary 12 Hong Kong: forecast summary 13 Hong Kong: gross domestic product by expenditure 23 Hong Kong: gross domestic product estimates 24 Hong Kong: employment by sector 25 Hong Kong: inflation indicators 26 Hong Kong: financial indicators 29 Hong Kong: balance of trade, Jan-Sep 29 Hong Kong: patterns of trade, Jan-Sep EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 2 31 Hong Kong: current account 37 Macau: tourism statistics, 2000 38 Macau: merchandise trade account, Jan-Sep 38 Macau: domestic exports by main market 38 Macau: imports by main market List of figures 13 Hong Kong: gross domestic product 13 Hong Kong: Hong Kong dollar real exchange rates 23 Hong Kong: quarterly gross domestic product 24 Hong Kong: inflation 31 Hong Kong: external balances 35 Macau: gross domestic product 35 Macau: pacata real exchange rates EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 3 Summary December 2000 Outlook for 2000-01 The issue of Taiwan could threaten Hong Kong’s autonomy during the forecast period. The EIU does not expect an extension of democratic accountability. In this year’s policy address delivered on October 11th, the current chief executive, Tung Chee-hwa, emphasised that the “process of adjustment and adaptation” would have to “take time” because Hong Kong had inherited “systems and institutions” from before the 1997 handover. After expanding by an estimated 9.7% in 2000, real GDP growth is forecast at 4.8% and 4.5% in 2001 and 2002 respectively. Consumer prices are estimated to fall by 3.4% in 2000, before rising by 2.3% in 2001 and 3.7% in 2002. The Hong Kong dollar will remain fixed to the US dollar. The current-account surplus will steadily narrow in 2001-02. The political scene Despite party splits and a loss of support, the Democratic Party (DP) narrowly won the highest number of seats at the Legislative Council (Legco) elections on September 10th. A report compiled by a member of the European Parliament, John Cushnahan (and endorsed by the European Parliament), called for the extension of universal franchise for the election of the Legco and the chief executive. In his policy address in October the chief executive, Mr Tung admitted mistakes in preparing and implementing some reforms, and pledged more careful and comprehensive assessments and better preparation before presenting reforms, but interspersed his speech with calls for more harmony. Economic policy Nothing in the Policy Address will act to reduce mounting concern at rising income inequalities. The chief executive announced that extra funding to combat poverty over the next two years will total just HK$2.7bn (US$346m: equivalent to just 1% of planned public expenditure). Instead, he argued that widening income disparities could only be corrected by long-term solutions, especially better education. A report for the European Parliament questioned the dominance of large sectors of the economy by a small group of tycoons, especially that of the Li Ka-shing family, and argued for stiffer competition laws, including anti-trust legislation. The economy Real GDP continued to expand very strongly in the third quarter of the year, rising by 10.4% year on year. This follows growth of 14.2% year on year and 10.9% in the first and second quarters of the year respectively. In spite of the strength of the economic recovery, prices continued to fall in the third quarter, albeit at a slower rate: the Composite Consumer Price Index (CCPI) fell by 2.8% year on year, compared to 5.1% year on year and 4.5% in the first and second quarters respectively. Foreign trade and The merchandise trade deficit has widened. China and the US remain the payments largest export markets. The current-account surplus narrowed in the first quarter of 2000. EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 4 Macau Outlook for 2000-01 Mainland officials are unlikely to have cause to intervene in the domestic affairs of the Macau Special Administrative Region (SAR). The new government will have to make decisions relatively quickly with regard to the SAR’s largest industry, gambling. GDP growth is expected to remain only moderate in 2001- 02. Interest rates will remain high, and the economy will continue to be dragged down by an oversupply of property. The political scene The chief executive, Edmund Ho Hau Wah, gave his second policy address on November 9th. He concentrated on outlining measures to accelerate the SAR’s weak economic recovery. Mr Ho’s contention that the “one country, two systems” principle was working very well appears to be shared by the population.