In the face of a global economic slowdown, Standard Chartered has lowered its 2001 gross domestic product (GDP) forecast for Hong Kong from 3% to 2%. At a press briefing, the bank's regional chief economist KC Kwok says the change in the prediction was largely driven by the impact the slowdown, particularly in the United States, has had on Hong Kong trade.
"The US is not in recession but growth has slowed quite dramatically year-on-year; falling from 4% for the first half in 2000 to 1% this year," Kwok says. "Corporate America has contracted, but so far the consumer and property markets have been resilient and shielded the economy from an outright decline."
Despite the present strength in US consumer spending, Kwok argues that uncertainty in the economy indicates that Hong Kong exports to the US and other markets will suffer in the short-term. As it is, they have already fallen by 5% in terms of value this year, according to Standard Chartered statistics.
"Trade buyers in the US were still buying from Hong Kong suppliers last year, but increasing cautiousness over there has resulted in a cutback in orders," states Kwok. "Because of that, exports in Q3 will not be anything stellar or encouraging, although we have to take into account that we are coming down from such a high base in 2000."
Nonetheless, Kwok is keen to downplay the possibility that Hong Kong, or the rest of Asia, could face another financial crisis. "The growth in exports may be starting to slow down, which inevitably will affect Hong Kong exports, but we do sell more consumer goods and they have been less affected than technology goods," he adds. "Also, East Asia has built up its foreign currency reserves in recent years to the point where many countries have a current account surplus. There will be a slowdown, but no crisis."
As for Hong Kong's near future as far as US trade goes, Kwok says that the Christmas period will be a significant time. "We will see whether the current downward spiral continues in the US, meaning job losses and less consumer spending, or whether the current consumer resilience will lead to increasing investment and an unwinding of corporate retraction," Kwok says. "My judgment is that US consumers will help trigger an improvement in the economy, and that the US has passed through the weakest point in the cycle."
It's good news for all those who wish to link the future of Asia's economy with what happens in the US. Kwok does not hold such a narrow view and believes that Hong Kong's overall future looks bright, particularly when developments in China are taken into consideration. China's accession to the World Trade Organization could happen before the end of the year and Kwok is bullish on how that will impact Hong Kong.
"China is a big country with enormous market potential," he stresses. "Companies trying to develop this market are going to need every bit of help from Hong Kong. I can see the demand for Hong Kong's service capabilities building up rapidly in the coming years. At the end of 2000, China was the seventh biggest country by trade volumes. There is considerable room for improvement and Hong Kong's role as one of the biggest trading ports could mean we will be able to get a large share of this progress."
Certainly, Kwok does not share the view that Hong Kong will suffer from the potential growth of major Chinese cities. "Two years ago, we heard a lot about how Hong Kong was not competitive and how it would lose out to Shanghai or Shenzhen," Kwok says. "Today, we hear a lot less of these comments and see a lot of action from the government, businesses and individuals. Hong Kong is more confident to meet the challenges ahead."