Limited impact expected for SAR

PUBLISHED : Thursday, 21 February, 2002, 12:00am
UPDATED : Thursday, 21 February, 2002, 12:00am

Economists believe the impact of the interest-rate cut in China will have only a limited impact on the SAR economy.

They said that because the cut had been well flagged and would have only a small impact in the mainland, there would be only a modest boost to the economy.

There could be more gloomy news today when new data are expected to show the number of jobless in Hong Kong at near-record levels. Many economists see the SAR avoiding the worst of the global downturn because of its links to the Chinese economy.

Ken Davies, chief China economist with London-based Economist Intelligence Unit, said the rate cut had been expected, particularly following comments by mainland officials recently that they would not rule out a cut.

'It's going to have a fairly limited impact on Hong Kong because it's going to have a fairly limited impact on China, because consumer markets are not highly developed,' Mr Davies said.

Structural issues in China meant there was not as much scope to manage the economy with monetary policy as there was in developed countries.

However, the cut would decrease the rate of increase in non-performing loans for state-owned enterprises and those companies which 'actually take payment of interest seriously as a business expense'.

'So that is slightly better and will indirectly affect Hong Kong, but of course it's not going to affect Hong Kong interest rates because that's tied to the [United States],' Mr Davies said.

Morgan Stanley chief economist Andy Xie Guoshong said the surge in China's exports would have a more positive impact on Hong Kong than the rate cuts.

'The key is that China's exports have grown substantially. We don't need to worry about the [mainland] economy this year and this will spill over to Hong Kong,' Mr Xie said.

He said Hong Kong's re-exports could surge as much as 20 per cent in the first two months of the year, which would boost consumer sentiment.

'Don't worry about what's going on in the US. Chinese exports [are growing because] they are displacing others' exports,' Mr Xie said. 'China's exports are going to take care of the economy.'

China's exports surged 28.2 per cent year on year last month, extending the gains of 11.4 per cent in December and 8.3 per cent in November.