Property and labour the major problems

PUBLISHED : Thursday, 03 March, 1994, 12:00am
UPDATED : Thursday, 03 March, 1994, 12:00am

INFLATION is the biggest challenge facing Hong Kong, Sir Hamish warned yesterday. But he admitted there was little that could be done about it by the Government this year.

While inflation eventually fell below last year's budget forecast, running out at 8.5 per cent instead of the originally expected 9.5 per cent, the Government is resigned to a similar surge in prices this year.

The problem is all domestic, Sir Hamish said.

''Inflation is not imported, it is home-grown. Import prices have increased by an annual average of around only one per cent over the last five years,'' he told Legco members.

The main engines of inflation were the result of the two major constraints on the economy - a shortage of property and labour, according to Sir Hamish. It was definitely not anything to do with the peg, although the dollar link meant that interest rates were defused as a weapon against inflation, he admitted.

''Property prices are rising to increasingly uncomfortable levels because of our acute shortage of land combined with growth in prosperity and the understandable ambition of families to own their own homes.

''Our workforce is, quite simply, too small. For an economy expanding at our rate into new markets and industries, the shortage of labour inevitably aggravates inflation pressures,'' he explained.

In an attempt to dull the edge of inflation, if not blunt it totally, the Government proposes to tackle both problems at source.

A change in town planning rules is expected to ease the supply, which should benefit commercial building through the redevelopment of existing sites.

There will also be new sites coming on stream through reclamation.

The labour problem is to be tackled in a modest fashion - too modest for some.

There is to be no change in the ceiling of 25,000 imported workers, which is less than one per cent of the workforce.

However, 1,000 graduate professionals and managers recruited in China will be allowed into the territory.

While the expectations of a budget surplus would be mildly disinflationary, even Sir Hamish could not suggest what sort of impact it would have, and other economists are concerned that the tax giveaways are exactly the sort of tinder that can set inflation alight.