Awaiting the day when SAR leaps from sickbed
Jake van der Kamp
Economic growth rates in Asia should be classified like the gear changes in a manual transmission car.
There are three speeds forward - 1-5 per cent, 5-10 per cent and probable nonsense.
There is one speed in reverse and do not try to set numbers on it. There is no reliable speedometer to clock it.
This happens to be more true of Hong Kong than most other Asian countries. There are immense problems in trying to measure the growth of an economy which has borders so open to capital flows they cannot be reliably tallied and which is built on trade in services rather than goods.
Even now the authorities have only the foggiest idea of what the balance of payments might be. For years, the International Monetary Fund has begged for the figures and all the Government has been able to say is that management of an economy operated under a currency board does not require them.
This is true, but the real reason they are not provided in anything but the roughest estimates is that the tools have never been available. It is one area in which the principle of laissez-faire is truly practised.
The same goes for the guesswork in what is called national accounts. In many countries it is derived from three methods of counting the figures - the expenditure, income and production-based models.
Hong Kong uses the expenditure-based model which is the simplest and most common. It works by toting up what the private and the public sector have spent on consumption and investment, then adding the surplus or deficit in trade in goods and services and finally throwing in a figure for changes in inventories.
But how does one get these numbers? There lies the difficulty.
Net trade in goods is easy. It is tallied at the docks. Net trade in services is not.
For consumption the Government can work out a figure of its expenditure but private consumption again relies on surveying retailers and cross-checking against other information.
This is all very well in countries where retailing is dominated by big chains, but when it depends on a mom and pop shop which keeps its cash in a bucket and its accounts on the back of an envelope do not ask for reliable figures on personal consumption expenditure.
Investment - gross domestic fixed capital formation as it is called - is relatively firm in construction figures because the Government keeps a close watch on building work. But this is only part of it. Investment in machinery is not as easily tracked.
And as for inventories, wet your finger, stick it in the air, pull it down and take a reading.
Finally, bear in mind that the overall growth rate which drops out of these calculations is meant to be an inflation-adjusted one.
What rate of inflation does one use? The consumer price index can apply only to the personal consumption component. Machinery price inflation is much less. Each component must have its inflation rate worked out and this is an extremely tenuous exercise.
The fact is that while professional commentators devote their time to quibbling about the first figure to the right of the decimal in economic growth announcements, it is the first figure to the left they should be looking at.
And so the economic figures announced yesterday by Financial Secretary Donald Tsang Yam-kuen look diabolical, do they? Well, keep in mind the enormous range of error to which they are subject. The general trend they show is probably right, but the absolute figures could be wildly off.
Then remember that although we are in trouble at the moment it is the sort of trouble inherent in having an open economy highly exposed to the economic fortunes of others.
When Asia turns sour Hong Kong turns poisonous. When America catches a cold Hong Kong catches pneumonia.
But when they start to recover Hong Kong leaps from its sickbed.