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SCMP Reporter

CONTRARY to some segments of popular opinion, China's biggest shares market - the Stock Exchange of Hongkong is not yet a casino.

  It does, of course, have some of the attributes. There was an element of recklessness in the market last week that suggests something of the gambling instinct. It is also true that the old casino rule, ''the house never loses'', continues to apply to themarket.

  Whichever direction the market leads from here, the brokers (brokerage fees), the Government (stamp duty) and the Stock Exchange (fees) have all won.

  The record turnover of $7.73 billion on Wednesday - equivalent to $1,300 worth of shares being traded by every man, woman and child in Hongkong - is merely the icing on the cake for these market players.

  All have seen big increases in revenues from higher turnovers in the last two years - and there is no sign of any slackening this year, with trading volume and value up at last year's record levels.

  But, in one important respect, the present action on the local stock market is totally unlike any casino. At least, to date, anyway.

  In a casino, with every throw of the dice or spin of wheel, there are quite clearly winners and losers. In the Hongkong market at the moment, there are no losers, only winners. That means the stock market wheel has not stopped spinning. It is only when it does, that it will be possible to determine the winners and the losers.

  Everyone in the market is currently a winner because it is political action that is moving the whole scenario. And it is not hard to make money when the whole market moves.

  It will still be politics that dominates the share market's fortunes in the immediate future. The progress of talks, now arranged between the British and China sides over the future of constitutional reform in Hongkong, makes that inevitable.

  But what should not be lost on all the players is that there are some dangerous economic numbers now emerging which could hit the stock market from the rear. These figures are coming out of China, not Hongkong. But as the local market is now almost totally a ''China Play'' that makes them important.

  The first set of figures out last week showed China's industrial production barrelling along at a frantic pace in the first quarter. The country's industrial output was up 22.4 per cent over a year earlier at 744 billion yuan or US$130 billion. Sales volume of industrial products also reached 683 billion yuan, up 26.1 per cent on 1992.

  Such figures would normally be greeted warmly, reflecting, as they do, the continued growth in the mainland economy.

  More dangerously, what they also signal is that, on top of last year's 12.8 per cent national growth, the Chinese economy is now growing even faster.

  This can only be dangerous as far as another over-heating of the economy - another bout of severe inflation followed by a crackdown by the economic authorities - may be about to occur.

  It should be noted here that it is the potential Chinese reaction to any over-heating that is important for Hongkong, not necessarily the over-heating itself. STATISTICS showed that in the January-March quarter, the country had a trade deficit of US$1.17billion, a $2.3 billion turnaround from the trade surplus of $1.21 billion the previous year.

  Exports were up only 7.4 per cent to $16.09 billion for the quarter, but imports surged ahead 25.4 per cent to $17.26 billion.

  Big increases were recorded in raw materials such as refined oil products, paper, rolled steel, and copper. But there were also increases in industrial equipment, integrated circuits, cars and aircraft.

  There is nothing inherently wrong with this either. It merely means that China's economy is growing strongly and imports would, therefore, be expected to rise.

  Indeed most forecasts were suggesting the China trade account would go into deficit soon, but they were expecting it to occur late this year, or during next year - not in the first quarter of this year.

  But, in the present circumstances it, too, probably indicates that the economy is becoming even more over-heated - and to levels that invite intervention to bring demand in the economy under control.

  Any discussion of these matters is, of course, irrelevant to the present stock market activity - no one in this market gives a damn about economic fundamentals.

  It is a bull market being driven by the political rumour or announcement of the moment, not the fundamentals of the economy or individual stocks.

  But, even in this context - and without worrying about fundamentals - it is worth looking back at what happened over the last week and what it really means to British-Hongkong-China relations.

  What really happened was that British and China merely ''announced'' they would have talks about Hongkong's political future through to 1997. They were not even particularly exciting talks as far as those taking part are concerned with British AmbassadorSir Robin McLaren on one side and Vice-Minister of Foreign Affairs Mr Jiang Enzhu on the other.

  Such a meeting is hardly a dramatic breakthrough.

  These two representatives were probably among those who took part in the previous ''talks about talks''. So, the debate has not advanced very far at all.

  But was it the ''fact'' of the ''official announcement'' of talks that the stock market - and everyone else - decided to grasp as the life-saving way out of the present political impasse? Or was it something deeper?   It is difficult to see anything substantial coming of the talks without the ''Patten proposals'' being jettisoned in total, or at least in good part.

  It could well be it was this prospect which probably really set the market soaring - not the mere fact that there is to be diplomatic level talks.

  Looking back over the last six months, it certainly appears that the market has fallen whenever Mr Patten has looked like winning with his proposals.

  When it has looked like his proposals might be withdrawn, modified or merely ''lost in the Gazette'', the market has risen.

  In any case, we should not get too carried away with the rise in the market.

  After all, it is only a few hundred points - a few per cent - up over the week.

  Those with memories longer than the last computer update will remember that, according to many analysts last year the market should have reached 7,000 points, 8,000 points or even 10,000 points by the end of 1992.

  That did not happen. The market still has a way to go yet before it reaches even those expectations - and we are now well into 1993! Ian Perkin is chief economist with the Hongkong General Chamber of Commerce 



Politics, not economics, hold sway