However, between 5 per cent and 10 per cent of Hong Kong licensed restaurants of all sizes - between 500 and 800 restaurants - could close within the next six to nine months, he said.

Mr Cheung's pessimism is shared by many in the industry, which over-expanded in the late 1980s.

Federation of Hong Kong Restaurant Owners president William Mark Yiu-tong said: 'Now is the time for the survival of the fittest. Closures are inevitable.' The tough times have led to the prominence of what Mr Mark calls 'cocooning', or people staying in instead of eating out.

'We have experienced quite a lot of difficult situations, but it has never been so bad,' Mr Mark said. 'We haven't been affected much by the bird flu, yet, but the general economy and the drop in tourists have already made things tough.' The Asian currency crisis and the impact of high interest rates on the stock and property markets had caused people to put off eating out, Mr Cheung said.

In December, many companies had cancelled banquets or had reduced the number of tables they had booked.

Some people had even delayed weddings, Sun Hung Kai Research analyst Kelvin Cheng said.

The sharp drop in customers only aggravated problems in an industry where red tape limits licensing, while labour is short and rents high.

'I've been hearing horror stories of landlords asking for 20-30 per cent increases in rents when renewing contracts, even though the property market is going through a downturn,' Mr Cheung said.

'Restaurateurs are victims of circumstances, and many have to either pay it [increased rent], having invested in the location and the restaurant, or close down. They cannot just move.' Latest restaurant receipt figures show that sales between January and September last year were 8.5 per cent up over the same period in 1996. Third-quarter sales were 6 per cent up over the same period the year before.

Since then, the December quarter, traditionally a boom time for restaurants dealing with Christmas banquets, was 'dead', Mr Cheung said.

'We should see sales drop 10-15 per cent in the fourth quarter compared with the same period in 1996,' he said. 'And the first three months to six months of this year will be extremely bad.' Restaurants catering to 'the super-rich or the budget-conscious' might escape the worst of the slump, Mr Mark said.

Fast-food outlets, in particular, recorded the biggest sectoral gain in sales in the first nine months last year, with an 11.3 per cent increase.

Their rise was second to bars, which chalked up a 12.4 per cent jump in revenues during the period, compared with a year earlier. But bars had reported disappointing sales last month, Mr Cheung said.

Rents were an issue for fast-food restaurants, many of which had expanded too much too fast, but for them, an eagerness by people to save money could well outweigh the drop in numbers eating out.

Fast food was cheap and drew the lower-end lunch-time crowd, analysts said.

'At between $20 and $30 a meal, the price at fast-food restaurants is attractive,' ING Barings analyst David Li said.

'In the current climate, there are people opting for cheaper restaurants, such as fast-food outlets, but it's hard to tell if this outweighs the number of people eating in.' Hardest hit in the coming year could be big Chinese restaurants. Many closed in the past few years, facing high overheads plus faltering banquet sales as Hong Kong's manufacturing industry crossed the border.

December's weak banquet sales, coupled with the prospect of flagging revenues over the Lunar New Year, when many people take holidays overseas, will make matters worse for those that remain.

Mr Mark said one of Hong Kong's top Chinese restaurants posted 30 per cent lower sales in December than a year earlier. That was just the latest example of a trend that was changing the face of the industry.

'In the better days, a few years ago, these large restaurants simply changed hands,' Mr Mark said. 'Now we're seeing the buyers actually closing them down, and changing them into other purposes, such as shopping arcades.'