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  • Dec 20, 2014
  • Updated: 11:13am
NewsHong Kong

Hong Kong Monetary Authority chief Norman Chan adds to gloom on economy

Norman Chan says higher rates in US may spur capital flight in region and hurt city

PUBLISHED : Monday, 11 August, 2014, 11:28pm
UPDATED : Tuesday, 12 August, 2014, 7:54am

Hong Kong's de facto central bank chief Norman Chan Tak-lam warned that the city's financial system could come under pressure when the United States raises its interest rates - a day after Financial Secretary John Tsang Chun-wah said the city's economy may face a "perfect storm".

Their comments came as some economists warned that the outbreak of Ebola had added extra uncertainty to Hong Kong's economic outlook, which is already clouded by political turmoil, stubbornly high home prices and sluggish retail sales.

In the Hong Kong Monetary Authority's bulletin yesterday, Chan warned of the possibility of capital flight from emerging economies if the US Federal Reserve raised rates next year.

Tsang warned on Sunday that the government would lower its forecast for Hong Kong's gross domestic product growth this year, after a disappointing second quarter that saw growth slow and unemployment rise slightly. GDP growth was originally predicted to range between 3 and 4 per cent for 2014.

The government is due to reveal second-quarter economic data, including GDP, on Friday.

Terence Chong Tai-leung, an associate professor of economics at Chinese University, said he was concerned about Ebola's impact if the deadly virus reached Hong Kong. "The impact could be comparable with that brought by Sars in 2003," he said.

Simon Wong Ka-wo, chairman of the city's Chamber of Food and Beverage Industry, was also worried about the impact of Ebola on the catering industry.

"Hundreds of restaurants were forced to close down during Sars. That was a dreadful experience and we don't want to see it again," Wong said.

Chong expects GDP growth for the whole of this year to be between 2.5 and 3 per cent, taking into account factors like Occupy Central and a potential interest rate rise - but provided the city can avoid Ebola infections.

"After Beijing comes up with a decision on electoral reform [for the 2017 chief executive poll], the political uncertainties will be dispelled and the market will be back to normal," Chong said.

"Even if the organisers of Occupy Central are unhappy with Beijing's decision, they are likely to organise another round of campaigning instead of staying in Central for months or years. Therefore, it's very unlikely the economic impact of Occupy Central will be long-lasting."



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Chong's wrong. A bad NPCSC decision increases uncertainty greatly.
Biggest threat to HK's economy is corrupt money from the mainland and instability on the mainland: not Ebola or Occupy Central. The anti-corruption crackdown will reach a point where it becomes destabilizing; not confidence enhancing for the Party.
It takes no Einstein to predict that there will be adverse consequences on HK's economy if USA raises interest rates but then it can be said our economy had blossomed for many years due to a low-interest rate environment and which had led to insane housing prices. Sooner or later, interest rates will have to rise and we have to cope with it. The same applies for Ebola or for that matter any deadly viruses. We need to take all preventive measures known to mankind to lessen the effects if this does reach HK.
Meanwhile, I beg to disagree with CHONG that after Beijing comes out with a decision on electoral reform the political uncertainties will be dispelled. This will only be true if the decision is not forced on the opposition. If the decision contains elements which are against the wishes of the population in general there is likely to be even more rows resulting in even more political uncertainty. There does not seem to be any likelihood of a compromise so should Beijing come up with a hardline decision the outlook may be bleak.
oh shut up norman
maybe you should save another trillion dollars for a rainy day you massive BUFFOON
Just because Norman and the FS can't fix the peg - and it's ill effects ; do not blame it now on interest rates rising!
Just because the government can't fix the housing crisis in HK - do not blame it on rising interest rates causing a correction.
You blamed low rates now you warn against rising rates. Silly.
Ant Lee
To think interest rate increase will cause a storm is ignorant and naive. The US will only increase interest rate when there is improvement in the economy with solid growth - definitely not to blindly follow a predetermined timetable (like our HK officials). It is obvious that John Tsang's hidden agenda is to mindlessly increase our reserves and prepare for one day when Beijing configure out a way to channel our reserves into mainland china.
More irresponsible comments from the MA. Dare I ask Mr. Chan that capital flight to where, if global interest rates were to follow the U.S.? What about all the RMB sitting in Hong Kong, are they going to fly back to China? Howe big is Hong Kong's debt market? Hong Kong is predominantly a service economy hence loans towards industries are very little, which industry will the rise in interest rate affect? Perhaps only the property market whereby the developers will face higher land carrying cost, and may bleed their inventory into the housing market. Would that be bad? Please run some real, instead of imaginary, numbers, and revise your B.S.
What's this silly scaremongering about Ebola; does it only effect HK ?
If it was an Armageddon case scenario - than the whole world is at risk.
Capital flight risk- I didn't hear anyone whining when there were huge inflows and the tycoons benefitting.
I always knew we had geeks running our government - just look at Norman; he can't fix anything like the dollar peg , so he just points his finger up and talks like a great philosopher; tries to warn about this and that.
Even if we deposited another $1 trillion dollars - these people will still warn of risk.
Risk for who? Protecting the wealth for who ?
In HK, the rich tycoons get systematic protection - a free government insurance, incase the market corrects , incase rates go up.
Interest rates have been deliberately held at artificially low levels for a very long time because the Federal Reserve, which affects all capital markets, tried to reduce the cost of servicing the USA's enormous federal debt and current account deficits. This, coupled with the printing of trillions of dollars to stimulate growth, has contributed to gross distortions including massive inflation in property prices. While in other developed economies deposit interest rates have been between 2 to 4%, in Hong Kong deposits earn virtually zero, such is the abuse of the HK banking sector's dominance of the local financing market, which has the biggest profit spreads in the developed world. Time to get real.
"The impact [of Ebola] could be comparable with that brought by Sars in 2003" - Terence Chong Tai-leung needs to stop appearing in the press and choose a different career path, because this statement is so stupid on so many levels that it warps reality.



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