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Mark Sharp

CONSUMER confidence is back, according to retail sales figures released last week.

 Government figures out on Friday showed that retail sales grew 10 per cent in value in May to $19.7 billion, with 6 per cent growth in volume.

 May's retail sales were led by a substantial 20 per cent growth in car sales, compared with the same month in 1996.

 This is a sign that retail sales are being driven by domestic demand, rather than by tourism receipts.

 Tourists don't buy cars. They are not like gold bracelets, which can be taken away with you when you leave.

 Nevertheless, figures showed that other luxury goods, such as jewellery and other expensive gifts, were also selling in greater quantities and at higher prices in May.

 Once again, there is ample evidence that the buying is local.

 Evidence of a confident SAR has already been visible in the local stock market, which has not softened, as expected in some quarters, since the handover on July 1.

 The stock market has continued to strengthen considerably this month, despite political uncertainties in the SAR over judicial challenges to the Provisional Legislature.

 It is certainly a case of 'business as usual'.

 Also, despite evidence that speculators have been waiting in the wings to take on the Hong Kong dollar, the SAR's economic fundamentals dictate that speculation is doomed to failure.

 With foreign reserves in excess of US$80 billion, Hong Kong has more than enough protection from speculators.

 The strength of the economy, booming stock and property markets and low unemployment, also mean that the currency is still fairly valued at the present level.

 Retail sales have been in the doldrums for the past two years.

 It was claimed before the handover, at times when confidence was ebbing, that goods were staying put on the shelves as local residents hived their cash away in the banks.

 That was when there was still talk of a capital flight from the territory.

 Now, car salesmen are expecting to see 20 per cent growth in car sales for the whole of this year, up from an expected 5 per cent growth rate predicted at the beginning of this year.

 There is even potential for a much higher level of retail sales if that confidence spreads outwards from the boundaries of Hong Kong.

 Initial reports suggested that potential visitors were staying away from the SAR after reading negative press reports on Hong Kong's future.

 Now that Hong Kong has undergone a smooth transition, the message should be starting to get through.

 After a shaky start, hotel bookings may also start to pick up, further boosting the retail sector.

 Hotels were shocked, a month before the handover, when they found bookings for July were sharply lower than they had expected.

 This was put down to the myth that Hong Kong's hotels were fully booked over the handover period.

 Bookings were only secured at the last minute.

 This was never going to be a year of plain sailing.

 But there now seems to be a silver lining somewhere behind the grey cloud of 1997.



Locals back in spending mood