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COUNTRY REPORT Hong Kong Macau The full publishing schedule for Country Reports is now available on our website at http://www.eiu.com/schedule. 4th quarter 1999 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent St The Economist Building 25/F, Dah Sing Financial Centre London 111 West 57th Street 108 Gloucester Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1000 Tel: (1.212) 554 0600 Tel: (852) 2802 7288 Fax: (44.20) 7499 9767 Fax: (1.212) 586 1181/2 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: http://www.eiu.com Electronic delivery EIU Electronic New York: Lou Celi or Lisa Hennessey Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 London: Jeremy Eagle Tel: (44.20) 7830 1183 Fax: (44.20) 7830 1023 This publication is available on the following electronic and other media: Online databases NewsEdge Corporation (US) Microfilm FT Profile (UK) Tel: (1.718) 229 3000 World Microfilms Publications Tel: (44.20) 7825 8000 (UK) DIALOG (US) CD-ROM Tel: (44.20) 7266 2202 Tel: (1.415) 254 7000 The Dialog Corporation (US) LEXIS-NEXIS (US) SilverPlatter (US) Tel: (1.800) 227 4908 M.A.I.D/Profound (UK) Tel: (44.20) 7930 6900 Copyright © 1999 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the EIU does not accept responsibility for any loss arising from reliance on it. 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 Contents 3 Summary Hong Kong 5 Political structure 6 Economic structure 7 Outlook for 2000-01 12 The political scene 18 Economic policy 23 The domestic economy 23 Output and demand 26 Employment, wages and prices 29 Financial indicators 32 Sectoral trends 33 Foreign trade and payments Macau 37 Political structure 38 Economic structure 39 Outlook for 2000-01 40 The political scene 42 Economic policy and the economy 45 Quarterly indicators and trade data List of tables 7 Hong Kong: forecast summary 10 Hong Kong: economic results and forecasts 24 Hong Kong: gross domestic product estimates 26 Hong Kong: retail sales 27 Hong Kong: employment by sector 28 Hong Kong: inflation indicators 31 Hong Kong: money supply 31 Hong Kong: financial indicators 33 Hong Kong: balance of trade, Jan-Sep 34 Hong Kong: patterns of trade, Jan-Aug 36 Hong Kong: customer deposits by currency and foreign-exchange reserves EIU Country Report 4th quarter 1999 © The Economist Intelligence Unit Limited 1999 2 43 Macau: foreign trade, Jan-Jun 43 Macau: exports by sector 44 Macau: imports by end-use category 45 Hong Kong: quarterly indicators of economic activity 46 Hong Kong: foreign trade List of figures 11 Hong Kong: gross domestic product 11 Hong Kong: Hong Kong dollar real exchange rates 25 Hong Kong: gross domestic product and consumption 25 Hong Kong: retail sales 28 Hong Kong: inflation 30 Hong Kong: Hang Seng index 30 Hong Kong: merchandise trade 40 Macau: gross domestic product 40 Macau: pataca real exchange rates EIU Country Report 4th quarter 1999 © The Economist Intelligence Unit Limited 1999 3 November 12th 1999 Summary 4th quarter 1999 Hong Kong Outlook for 2000-01 Hong Kong will continue to be dogged by constitutional controversy in 2000-01. The “opposition parties”, although remaining vocal critics of the government, may lose out in the 2000 legislative election. The government will strive for fiscal balance, which could result in tax reform. The fixed link between the Hong Kong and US dollars will remain in place. External demand will strengthen. Domestic demand will also begin to grow again, boosted partly by a recovery in investment growth. Inflation will remain low but the goods and services surplus will narrow. The political scene The Court of Final Appeal (CFA) has been asked to rule on the case of the “overstayers”, so the controversy over the right-of-abode issue has continued. The government’s estimate of the number of people made eligible to come to Hong Kong by the CFA’s original right-of-abode ruling has been questioned again. The CFA has also been asked to decide on the legality of legislation outlawing the defacing of flags in Hong Kong. Dissatisfaction with the Democratic Party of Hong Kong has increased. Fears about press freedom in Hong Kong have arisen. The chief executive, Tung Chee-hwa, has been accused of asking people to stop commemorating the 1989 Beijing massacre. Economic policy The government has started to sell off some of its shares. A more active economic policy is being adopted, as Mr Tung seeks to “restructure” the economy. High-tech activities are being encouraged, and it has been claimed that a deal with a US company, Walt Disney, to establish a theme park in Hong Kong will boost the local tourism industry. Plans for the merger of the stock and futures exchanges have progressed. The first mortgage-backed securities have been issued. The economy • An economic recovery, driven by neither gross fixed investment nor export demand, but rather by private consumption, has begun. The Hong Kong Monetary Authority has released a paper suggesting that economic growth is not as surprising as it may appear to be. • Unemployment has remained above 6%. Although employment in most major sectors has risen, in manufacturing and construction it has continued to fall. Real wages have continued to rise, owing to sharp falls in prices. • Nominal interest rates have risen, but M1 has started to grow again. The stock exchange’s second board, the Growth Enterprises Market (GEM), has started to accept applications from companies wishing to list. A large Chinese oil firm, China National Offshore Oil, has been forced to delay an initial public offering, but China Telecom (HK) has raised funds in Hong Kong. EIU Country Report 4th quarter 1999 © The Economist Intelligence Unit Limited 1999 4 • A new firm has entered the supermarket sector, intensifying price competition. A large conglomerate, Hutchison Whampoa, has restructured its telecoms interests. The development of Hong Kong’s Internet industry has continued, and property firms have diversified into high-tech activities. Foreign trade and The merchandise trade deficit has narrowed. Merchandise exports to some payments Asian countries have risen, as have imports from China. Foreign-exchange reserves have risen slightly, and depositors have maintained their confidence in the durability of the fixed link. Macau Outlook for 2000-01 A new government which will take office on December 20th, when Macau will become a special administrative region (SAR) of China. The incoming administration will attempt to improve the law and order situation but has warned that the gang-related violence that has plagued Macau since late 1996 will not disappear overnight. The economy may start to grow again in late 1999 as a result of expenditure related to the handover, and because of the nascent economic recovery in Hong Kong. The political scene The chief executive-designate, Edmund Ho, has made seven appointments to the SAR’s Legislative Assembly. Mr Ho has also appointed judges, and individuals to his Executive Council (Exco). The trial of alleged members of the 14K gang has begun. Mr Ho has said he will not adopt a heavy-handed approach to the gangs. Portugal will allow a “technical” contingent of People's Liberation Army (PLA) troops to enter Macau before the handover. The economy • Two ferry firms have merged, and an insurance joint venture has been launched. Construction activity has contracted, but exports, imports and tourist numbers have all increased. Editor: Paul Cavey All queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023 Next report: Our next Country Report will be published in February EIU Country Report 4th quarter 1999 © The Economist Intelligence Unit Limited 1999 Hong Kong 5 Hong Kong Political structure Official name The Hong Kong Special Administrative Region (SAR) of the People’s Republic of China Form of state Special administrative region of China, with its own constitution (the Basic Law), guaranteeing a “high degree of autonomy” for the next 48 years. Headed by a chief executive appointed by China The executive 14-member Executive Council (Exco), serving in an advisory role for the chief executive Head of state Jiang Zemin, president of the People’s Republic of China Legislature Unicameral Legislative Council (Legco), comprising 20 directly elected members, 30 members elected by functional constituencies and 10 elected by an election committee comprising mostly delegates chosen by functional constituencies.