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Beijing's helping hand boosts local economy
( 2003-12-17 08:04) (China Daily by Zhu Wenhui)

Since the government of the Hong Kong Special Administrative Region (SAR) and the central government signed the Closer Economic Partnership Arrangement (CEPA) in June, the Hong Kong economy has shown a strong upward momentum.

Emerging from a six-year-long economic low, Hong Kong will soon step into a new round of growth, as illustrated by the 4 per cent gross domestic product growth for the third quarter.

This pleasant turn takes place because the central government has drafted policies to complement the demand of the region's market, spelled out Hong Kong's economic ties with the Chinese mainland in law and boosted confidence in Hong Kong.

After the Asian financial crisis hit the region in 1997, Hong Kong was burdened by both a cyclical slow-down and economic restructuring - the difficulty and duration of which went far beyond expectation.

The economy regained some vigour in 2000, achieving 10.2-per-cent GDP growth. But the world's highest figure did not help improve people's lives due to the lingering pressure of economic restructuring.

The real estate, labour and capital markets in the region were all knocked out of kilter.

A simple cure to the region's economic recession would be to cut the Hong Kong dollar free from its US dollar peg, allowing it to devaluate. But that would be far too risky.

As a result, the real estate and labour markets can only see a continual shrinkage in price. Property prices have been slashed by half and the average monthly salary for college graduates has dropped to HK$7,000 (US$897) from more than HK$10,000 (US$1,282).

The region's fiscal deficit was 5 per cent of its GDP in the 2002-03 fiscal year.

The consumer price index has been dipping for more than 50 months in succession due to people's uncertainty about the future.

This is the worst most economies could expect and also, the background from which CEPA emerged.

The boom of Hong Kong's economy over past decades was based on its unique strategic position in international politics and economics.

However, since the mainland became more open following its opening and reform policies and especially its accession into the World Trade Organization (WTO), Hong Kong's role as a window for the mainland to the rest of the world has deteriorated.

Meanwhile, when industrial restructuring focusing on information technology began in the 1990s, Hong Kong did not have adequate technological muscle to supply new impetus for its traditional allies in the mainland's Pearl River Delta.

It could be said that while "one country, two systems" defines Hong Kong's position politically, its economic position has now been made clear by CEPA.

Under the CEPA framework, the SAR and the mainland established a closer economic partnership compared to their WTO links. In this way, Hong Kong will benefit from the mainland's economic progress and it also gets a new standing in the world economic map.

According to CEPA, the mainland is opening its service sector up to Hong Kong, which is the SAR's best advantage and the mainland's most needed commodity.

Such complementary advantages between the two areas will not only help lift Hong Kong's economy, but also assist the mainland to integrate with the rest of the world.

When the arrangement comes into full play, Hong Kong will have a leading role in creating momentum for further opening up of the mainland.

A good example can be found in the Pearl River Delta. Shortly after 1997, Hong Kong was no longer the first option for the delta, but was competing with Guangzhou and Shenzhen, two of the most vibrant cities within the delta.

Some people in the delta held that Hong Kong was of no help for the delta and the delta should rely on itself to develop.

However, the fact is, the growth of the delta became stagnant after 1997, lagging somewhat behind the Yangtze River Delta in East China.

After CEPA was signed, Guangdong authorities switched their policy focus to try and integrate their manufacturing with Hong Kong's service sector. Thus, the favourable treatment granted to Hong Kong under the agreement could also benefit the delta.

A direct impetus of permission allowing Beijing, Shanghai and Guangzhou residents to go to Hong Kong on private tours has given a huge boost to the SAR's economic recovery.

The tourists have not only magnified Hong Kong's tourism, retail, catering and hotel sectors, but also brought about many commercial activities.

The approval opened the gate for a two-way flow of people between the mainland and Hong Kong. And it will certainly cause more similar flows in commodities, information and capital.

To sum up, economic revitalization in the past several months is a fundamental change resulting from a redefined strategic position for Hong Kong as set by CEPA and renewed confidence in Hong Kong from the international society, the mainland and Hong Kong citizens.

Based on that, the economy is ready to regain its strength in a sustained manner, pushing it on a new upward cycle.

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