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Let the market rule, urges HK economist
( 2003-09-30 10:58) (eastday.com)

Richard wong Yue-chim is Dean of the Faculty of Business and Economics at the University of Hong Kong. He studied economics at the University of Chicago where he earned a doctorate in 1981.

His main research interest is in the application of economic analysis to public policy. His current research focuses on housing and property markets, the integration and development of the Pearl and Yangtze River Deltas and the political economy of Hong Kong.

He was awarded the Silver Bauhinia Star in 1999 by the Hong Kong government for his contributions in education, housing, industry and technology development.

He visited Shanghai last week for the start of this year's University of Hong Kong and Fudan University cooperative International MBA program.

Q: As Shanghai develops, its business costs are also rising. Do you think this will curb investment flow into the city?

A: The business costs, in terms of (an increase in) wages and rents, are signs of success for Shanghai. The growing foreign direct investment flow pushed up the prices and made highly-skilled people in short supply. At this stage, the city needs high-value business activities.

Other than wage and land costs, it's important that the city should lower transitional costs, or regulatory costs. If regulations in terms of licensing, registration or tax are too complicated, uncertain or unpredictable, not transparent, it will harm the economy.

Q: Have conditions matured for Hong Kong to become the RMB offshore center?

A: I don't think Hong Kong will become the RMB offshore center as the precondition is the RMB should be convertible. But in the short term, it's desirable if RMB circulated outside China can be brought back into the banking system.

Q: Is there a bubble in Shanghai's real estate sector and will property prices come down?

A: You know there is a bubble only when it collapses. But on the whole, the property market has the tendency to develop a bubble starting with increasing demand. As demand rises, you have more construction until you build too much.

It's important the government tightens the supply of land and housing to curb a serious bubble. And it has to be a long-term and consistent control.

Q: What do you expect the signing of the Closer Economic Partnership Arrangement will bring to the Chinese mainland market?

A: In the last 20 years, Hong Kong's manufacturing has shifted to the mainland, and most are in the Pearl River Delta. The service sector now constitutes more than 85 percent of Hong Kong's economy.

Under cepa, the main benefits in terms of cooperation with the mainland is in the area of producer services. That is also where Shanghai would like to build up its strength.

Q: Compared with other cities, what are Shanghai's special benefits from CEPA?

A: For provinces such as Zhejiang or Jiangsu, the market opening-up translates into enlarged manu-facturing. But Shanghai will probably benefit from the service sector - legal services, media, accounting etc. Since Shanghai's exports are now being fueled by increasing foreign direct investment, financial and logistics services are even more critical.

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