Hong Kong at a Glance: 2001-02
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COUNTRY REPORT Hong Kong At a glance: 2001-02 OVERVIEW Donald Tsang will take over as chief secretary for administration on May 1st; he will be succeeded as financial secretary by Antony Leung. The first term in office of the chief executive, Tung Chee-hwa, comes to an end in 2002. He is unpopular in Hong Kong, but trusted by China's government, and so is likely to be appointed to a second term. After growing by 10.5% in 2000, real GDP is likely to expand by just 3% in 2001 as external demand weakens. Growth will pick up to 3.9% in 2002 on the back of improving export performance. Consumer prices are likely to be broadly stable this year, but inflation will return in 2002. The current account is likely to remain in modest surplus this year and next, despite an expanding merchandise trade deficit. Key changes from last month Political outlook • The government introduced legislation in mid-March that will enable the selection of the next chief executive to be made by the same 800-person election committee that was chosen in July 2000 for the purpose of selecting legislators in the Legco election the following September. This reinforces the EIU's view that Tung Chee-hwa will be re-appointed to a new term. Economic policy outlook • Interest rates have continued to fall, in line with reductions by the US Federal Reserve. We expect US rates to fall by a further 100 basis points this year, compared with our previous forecast of reductions of 75 basis points. Economic forecast • Recent data confirm our forecast of real GDP growth of just 3% this year. Retail sales, industrial production and export data for the first two months of 2001 have all been weak, indicating that the slowdown that began in the fourth quarter of 2000 has continued into the new year. April 2001 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 our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. 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 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1007 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7830 1023 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.eiu.com Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright © 2001 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 Hong Kong 3 Outlook for 2001-02 Political outlook Domestic politics The financial secretary, Donald Tsang, will become chief secretary for administration on May 1st. He will replace Anson Chan, who announced in January this year that she would retire early. Mr Tsang’s position has, in turn, been filled by a banker, Antony Leung. The term of the chief executive, Tung Chee-hwa, expires in 2002 but it is highly likely that he will be selected for a second term of office. The big question now is whether Mr Tsang, who is deferential (in public at least) to Mr Tung, will defend Hong Kong’s present freedoms more or less effectively than Ms Chan. It is expected that Mr Tsang will take a less confrontational stance in private towards Mr Tung and the central government, but that he will continue to defend Hong Kong’s autonomy and the democratic values that he has always propounded. Over the next two years, the new leadership will need to address several difficult issues in addition to the management of government finances. The economy is still in transition from one based on manufacturing, which began to wane in the 1980s when industries shifted wholesale to the Chinese mainland, to a knowledge-based economy. Managing this shift will require great changes in education and training. During the forecast period Hong Kong will retain the autonomy guaranteed it under the Basic Law (the territory's post-handover mini-constitution), but that autonomy will continue to be challenged from without and within, leaving the rule of law dented, though largely intact. In January the government asked the Court of Final Appeal (CFA) to seek guidance from the Standing Committee of China’s National People's Congress (NPC) in deciding whether to uphold the decision of two lower courts to grant the right of abode in Hong Kong to a three-year old boy born in Hong Kong of mainland Chinese parents. This is the second time that the government has decided not to accept the CFA’s right of final adjudication: in 1999 it overturned a CFA right-of-abode ruling by requesting an interpretation of the Basic Law from the NPC. As was the case in 1999, the government is now claiming to represent popular fears of an influx of mainlanders, this time the children of other mainlanders coming to Hong Kong to give birth, of whom there is normally a manageably small number. At the end of March, the CFA announced that it would not decide on the case until after a number of similar cases had been heard in May. If, as is likely, the CFA upholds the decision to grant right of abode without requesting “clarification” from the NPC, the government will then be faced with the choice of accepting defeat or making yet another direct appeal to the NPC, which would further undermine the CFA and the rule of law in Hong Kong. Hong Kong’s relationship with the central government in Beijing will also remain problematic. On the political front, China will continue to expect the Special Administrative Region (SAR) to rein in protests against the central government like those by the Falun Gong spiritual sect. This issue may well come to a head in May, when China’s president and general secretary, Jiang EIU Country Report April 2001 © The Economist Intelligence Unit Limited 2001 4 Hong Kong Zemin, is due to arrive in Hong Kong to participate in an economic conference. Mr Jiang has a great personal dislike of Falun Gong. Were he to be confronted by Falun Gong protesters he might well insist that the Hong Kong government take action against the organisation, prompting debate within the government about how to respond to such a call. Chief executive watch Mr Tung will almost certainly be appointed for a second five-year term of office in 2002, as there appears to be no alternative candidate with such a strong track record of obeisance to the wishes of the central government. Although unpopular with the Hong Kong public, he is trusted by the Politburo Standing Committee of the Chinese Communist Party (CCP) in Beijing, which is the real electorate. To ensure minimum democratic interference with this smooth transition, the government in mid-March introduced legislation that will enable the selection of the next chief executive to be made by the same 800-person election committee that was chosen in July 2000 for the purpose of selecting legislators in the Legco election the following September. Article 45 of the Basic Law stipulates that the method for selecting the chief executive shall be specified in the light of the actual situation in the Hong Kong SAR and in accordance with the principle of gradual and orderly progress towards the ultimate aim of selecting the chief executive by universal suffrage. Except in so far as members of political parties can now retain their party membership until they are elected (in the last selection process, they had to resign before nomination), such progress is not in evidence. Economic policy outlook Policy trends Mr Tsang’s swansong, the 2001/02 budget, eschewed any large extra fiscal stimulus, despite the certainty that growth will slow this year. The economic agenda of the new financial secretary, Mr Leung, has not yet been set out but tax reform will inevitably be at or near the top, as he indicated in his opening statement in which he promised to attach great importance to the prudent management of public finances.