Report sees little damage from row

Carrie Lee

UNCERTAINTIES sparked by Sino-British head-butting are unlikely to adversely affect Hongkong's economy in either the short or long term, says a report by Political and Economic Consultancy.

''Hongkong is in the unprecedented situation of being sucked into a political 'black hole' at the same time that the economy is exhibiting momentum that shows no sign of diminishing,'' says the report.

Consultancy managing director Robert Broadfoot added: ''At its current finger-pointing, name-calling level, the dispute should not derail the economy.'' This is because Hongkong's connections with China, the main stimulant for the territory's economic growth, is a fact that cannot be changed by the Sino-British row, says the report.

''As long as the dispute does not de-stabilise the Chinese economy or political system, the key productive sectors of the economy should be largely unaffected,'' Mr Broadfoot said.

The report says that for the first half of the year Hongkong's economy should be particularly strong, as China's boom continues to be the main source of demand for trade, while the US economic recovery should become more pronounced.

It adds that in the second half, some levelling off is possible if China's economy slows due to infrastructure bottlenecks and the central government attempts to tighten up on credit expansion.

By then, however, the US recovery should be well enough under way to help buffer any downturn, the report says.

''This means that full employment conditions will prevail throughout the year and the balance in trade in goods and services will be well in the black.'' Over the long-term the territory's prospects depend less on Sino-British relations than on developments in China itself, including the transition to the post-Deng Xiaoping era and the ability of the Chinese leadership to prevent economic imbalances from growing so large that they disrupt social and political stability.

''No matter how the current political fight with Britain over political reform in the territory turns out, the fate of Hongkong's economy will be determined largely by events in China,'' the report says.

A threat on the horizon, the report suggests, lies in rising accommodation costs, which are fast catching up with those in Tokyo.

Housing rents have long been high, and eating out, schooling and health care costs are rising.

''Companies will be weighing the cost of operations in Hongkong against both profit potential and site alternatives. Both services and manufacturing enterprises are likely to try to shift those functions they can to cheaper locations,'' the report says.

Mr Broadfoot said: ''This leaves Hongkong operations to perform functions to which it is uniquely suited within the high cost constraints. Companies would firstly consider Singapore, and then China as an alternative.''