PRAISE FOR THE closer economic partnership arrangement (Cepa) is not as fulsomely heard these days as it was last year but Financial Secretary Henry Tang Ying-yen is still trying. Speaking last week at a first anniversary celebration of this agreement for early tariff-free access by Hong Kong industries to mainland markets, he said Cepa now applied to 90 per cent by value of local exports to the mainland and had proved its worth to Hong Kong with $400 million worth of exports covered under its arrangements. Let us look at these numbers more closely. Over the past year Hong Kong's domestic exports to the mainland amounted to about $36 billion. If Cepa boosted this figure $400 million, then it did so by barely 1 per cent. Even this, of course, assumes that the $400 million of exports would not have been made without Cepa, which is a very big assumption indeed. It is highly unlikely that Cepa alone created a mainland market for these goods where none had existed before. There is an even better way, however, to measure the success of Cepa in opening mainland markets to Hong Kong. The red line in the first chart shows you the overall growth rate of the mainland's imports on a six-month average basis (averaged to smooth out month-to-month volatility). This import growth is running at the moment at more than 40 per cent year on year, a very high figure. Now move down the chart and you can see the blue line just edging up over the zero axis. Hong Kong's overall domestic exports are showing real growth again after a more than three-year period of decline. Move a little lower and you see the green line. The share of those domestic exports going to the mainland is still in decline despite all that Cepa was meant to have achieved. Our exporters have done better in markets in which they did not have Cepa advantages than the one in which they did. And take note that this is very obviously not because of slack demand from the mainland, not with the mainland's overall 40 per cent import growth rate. Best try another angle, Henry. Cepa is indeed meant for self-congratulation but you would do better to avoid talk of numbers when patting yourself on the back. AND, TALKING OF mainland-related numbers, I see the authorities in Beijing are trying to back out of earlier indications that they would raise yuan interest rates when the consumer price index showed inflation at more than 5 per cent. Last month's inflation figure of 4.4 per cent, up from 3.8 per cent in April, must have surprised them. The line from National Bureau of Statistics is now that 'about the current price increases, the bureau believes that the level of increase is still entirely within [our] range of control. [China] can certainly avoid the problem of serious inflation'. How comforting it is to have such certainty. I suppose in that case that I can dispense with the opinions of United States Federal Reserve chairman Alan Greenspan, who told a Senate banking committee on Wednesday that the mainland's measures to maintain a fixed yuan exchange rate 'creates problems that are obviously exaggerating the difficulties they're currently having with respect to underlying inflationary pressures and boom conditions'. Mr Greenspan, it seems, does not realise that management of monetary affairs is like navigating a ship - just dial your speed, turn the wheel and you go where you want as fast as you want. Perhaps the world's leading central banker should go to Beijing and, at the feet of the statistics bureau, learn how it is done. But it also seems that the mainland's version of this ship is travelling somewhat faster than the occupants of the wheelhouse recognise. As the second chart shows, inflation in such key measures as raw materials and corporate goods has already far exceeded 5 per cent. These two probably are also better measures, given how much of the CPI is still price controlled. In its belief that administrative edict alone will suffice to bring inflation under control, I recommend to the bureau a lesson learned at the seaside more than a thousand years ago by an English soul mate, a certain comrade K. Canute.
