In the swing of things

China Daily (Canada) - - FRONT PAGE - By OSWALD CHAN in Hong Kong oswald@chi­nadai­

A strong US dollar is spark­ing short-lived cycli­cal swings for the econ­omy of Hong Kong. From a broader per­spec­tive, how­ever, the econ­omy is con­fronting struc­tural is­sues that must be ad­dressed to sus­tain long-term growth.

A Credit Suisse re­search re­port in March de­scribed the SAR’s econ­omy as “un­bal­anced, trou­bled and hol­lowed-out” — as in heav­ily skewed to the fi­nan­cial ser­vices in­dus­try and main­land in­bound tourism, which has an im­pact on sec­tors such as im­port/ex­port, whole­sale and re­tail, as well as the ac­com­mo­da­tion and food ser­vices in­dus­tries.

The in­vest­ment bank pre­dicted that the lo­cal econ­omy could only grow 1.6 per­cent this year, or the lower end of the gov­ern­ment fore­cast, as the city would be heav­ily sus­cep­ti­ble to any US in­ter­est rate hike and a struc­tural decline in main­land tourist ar­rivals.

It would be dif­fi­cult in the short term for Hong Kong to de­velop some forms of high­tech­nol­ogy re­search and devel­op­ment ser­vices, and high value-added man­u­fac­tur­ing, Credit Suisse warned.

Be­sides a skewed eco­nomic struc­ture, Hong Kong is con­tend­ing with other struc­tural eco­nomic is­sues as well.

Ac­cord­ing to Hang Seng Bank, the SAR posted a sig­nif­i­cant drop in trade growth af­ter the 2008 fi­nan­cial cri­sis. An­nual trade growth from 2011 to 2014 av­er­aged just 3.5 per­cent com­pared with 9.2 per­cent dur­ing 2002-2008. And the slow­down has been more pro­nounced than can be ac­counted for by cycli­cal fac­tors alone.

“The chang­ing pat­tern in re­gional trade can­not be un­der­stood with­out ad­e­quate con­sid­er­a­tion of the is­sue of process con­trol,” con­cerns over which have seen Asian economies begin to shift away “from a rel­a­tively higher de­gree of ver­ti­cal spe­cial­iza­tion,” said Ryan Lam Chun-wang, chief econ­o­mist at Hang Seng Bank.

“Given that a struc­tural change in re­spon­sive­ness of trade growth seems to be un­der­way, ex­ports growth in Asian economies will likely be weaker over the next few years com­pared with the his­tor­i­cal stan­dard,” Lam ex­plained.

“This chal­leng­ing ex­ter­nal back­drop is a key el­e­ment of our rel­a­tively cau­tious view on Hong Kong’s eco­nomic prospects for 2015.”

Ryan Lam Chun-wang, chief econ­o­mist, Hang Seng Bank

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