Is Hong Kong's economic boom heading for trouble? That question is being asked with increasing frequency here as this British colony enters a period of greater economic uncertainty than it has faced in many years.
On the surface, the answer appears to be a resounding "no." Despite the worldwide recession, Hong Kong's gross domestic product grew by 9 percent last year, and the government ended up with a huge budget surplus of $1.2 billion (US), enabling it to cut both corporate and personal income taxes.
In his budget message earlier this year, outgoing Financial Secretary Sir Philip Haddon-Cave predicted a further growth of 8 percent in 1981.
Although recession abroad hit hardest at Hong Kong's key export markets in Europe and the United States, prompting a revival of protectionist sentiment there, the colony's exports continued to flourish.
The slack in demand for the traditional products made here -- textiles, electronics, and plastics -- was largely taken up by a dramatic increase in re-exports (primarily raw materials and semi-manufactured goods imported from China and re-exported.) While domestic exports grew by 22 percent last year, re-exports for the same period registered 50 percent growth and in early 1981 were growing at an annual rate of 65 percent.
The expansion of trade ties with China also played a broader role in the colony's dazzling 1980 performance. As Peking froze most foreign contracts as part of its economic "readjustment," Hong Kong businessmen continued to embark on joint ventures in China's "special economic zones" near the Hong Kong border. These zones were largely unaffected by China's nationwide retrenchment.
Moreover, the colony's reputation as a financial center, coupled with its sophisticated international communications, attracted an increasing number of foreign companies hoping to do business with China.
The feverish pace of business activity spurred the stock market to new and dizzying heights. More significantly, it also fueled a boom in the property market unprecedented in Hong Kong's history.
In Central, the heart of the colony's business area, some choice building sites sold for $800 (US) a square foot. But the astronomical prices did not deter developers from adding numerous new skyscrapers to the maze of high-rise offices and luxury flats that dot the Hong Kong landscape. Meanwhile, the face of the rural new territories was transformed by the rapid construction of several new industrial towns.
However, despite last year's impressive performance and the optimistic predictions of the financial secretary, the outlook for 1981 is clouded by several potentially serious problems.
Although Hong Kong in 1980 managed to rise out the impact of both the recession and China's "readjustment," the signs are that this year the colony will be unable to avoid serious losses from the continuing slowdown in its major export markets and cutbacks in the People's Republic of China considerably greater than had previously been anticipated.
"There's no question the manufacturing sector is going to come under pressure ," said Frank Heath, a researcher for Sun Hung Kai, a large securities firm.
Already there has been a sharp decline in orders for plastics, textiles, metals, and electrical goods from the US and Europe. And a recent survey of exporters' expectations found a consensus that domestic exports would grow by only 3 percent in 1981.
One result has been a sharp rise in the level of unemployment, which is expected to reach 5 or 5 1/2 percent of the labor force --100,000 people -- by midyear. An additional 100,000 are already underemployed, working reduced hours or three or four days a week.
By Western standards, these figures are not high. But in recent years the Hong Kong economy has been characterized by full employment and frequent labor shortages. So the fact that people are being thrown out of work has generated widespread unease.
At the same time, inflation has soared to 15 percent, while wage increases have not kept pace with rising prices. The government maintains that most of the inflation is imported in the form of high prices for oil and raw materials. However, a growing number of observers contend that the primary reason for the surge in prices is a continuing and large-scale expansion of credit and the money supply -- a development directly related to the property boom.
In 1980 the money supply grew by 40 percent and domestic credit by 60 percent , according to a financial analyst for Sun Hung Kai.This was largely the result of the needs of property developers for huge amounts of cash and credit to finance the purchase and development of land.