HK business ranking set to slide
SHEEL KOHLI in London
Hong Kong is forecast to crash from being ranked the most desirable place in the world to do business to 14th place, according to a study by the Economist Intelligence Unit (EIU).
In its first study into global business environment rankings, which look at how attractive a country is to invest and do business in, the EIU said China's resumption of sovereignty over the territory would be accompanied by 'a significant risk' that the mainland would fail to fully honour its commitments to Hong Kong, causing its rankings to slide.
In its second-quarter Global Outlook report released yesterday, the EIU predicted that Hong Kong, placed first for its optimal business environment in a comparison of 1992-1996 data, would see the sharpest drop of all 58 locations measured, to 14th place in 1997-2001.
'Hong Kong will continue to grow at a healthy pace, and we believe a disaster scenario following the handover of power to Beijing is very unlikely,' the EIU study said.
'However, there is a significant risk China will not fully honour its promise, repeatedly stated and enshrined in a number of documents, to keep Hong Kong stable and prosperous.' Such destabilisation could particularly come from friction between Hong Kong officials and the Chinese Government, the EIU said.
'A steady increase in corruption and erosion of the rule of law can be expected over the forecast period,' it said.
Elements underpinning Hong Kong's free market, such as low taxes, guaranteed property rights and a liberal trade and exchange regime, would remain, the EIU said.
'But creeping state intervention, which will have an unfavourable impact on the business environment, is also likely,'it added.
China itself, is also expected to fall in the rankings, from 47th place in 1992-96 to 50th in 1997-2001, despite maintaining a liberal foreign investment regime. Reform and liberalisation would continue, 'but at a slow gradual pace', the EIU said.
'The main impulse will be to try to shield domestic industries from pressures emanating from integration into the global economy.' The EIU said the model for its results used quantitative data, business surveys and expert assessment over two periods - 1992-96 and 1997-2000 - and was designed to reflect the main criteria used by companies to formulate their global business strategies and investment location decisions.
It's forecasts were based on predictions of key economic variables and the quantification of expected policies in various categories of the business environment, as well as business sentiment.
'Assessments based on forecast conditions better reflect investors' decision-making processes on these countries, for an investment commitment is primarily based on anticipated future, rather than current, circumstances,' the EIU report said.