Hong Kong in the midst of a currency crisis

In an article presented at a conference in February 1997--well ahead of the currency crisis and the recession in Hong Kong that came in its wake, I wrote that "there are causes for concern...These causes for caution have nothing to do with the leaving of the British or the implication of 'Red Flag Over Hong Kong.' They have to do with international dynamics." (Ho, 1997) I further warned that if the government was not careful and if it did not act in time, the problems could be serious." (Ho, p.89) A year later, a cover story in Business Week (16 February 1998) carried the message: "Hong Kong: Don't be Fooled by the Markets. The Economy has Serious Problems." The central theme in the Business Week article was that Hong Kong had become less competitive. It cited more expensive secretaries, more highly priced real estate, and more costly port services. These are indeed problems. But as late as the first half of 1997 Hong Kong was still growing rapidly. Its publicly listed companies were still highly profitable. The government was still running large surpluses. Even more ironically, a book entitled The Hong Kong Advantage, jointly authored by Michael J. Enright, Edith E. Scott, and David Dodwell, was published in that year by Oxford University Press. Despite high costs, Hong Kong was thriving on the basis of its ability to tap the cheap labor in South China, to serve as a middleman facilitating trade, syndicated loans, and stock flotations, and to offer excellent infrastructure and management skills to those multinational companies that have chosen to set up regional headquarters in Hong Kong. Was Hong Kong's success merely a mirage or a bubble? My earlier analysis suggests otherwise. My earlier analysis, in February 1997, raised four delicate problems that require careful handling by the new SAR government. They were a fiscal problem, a monetary problem, a social problem, and a political problem. Unfortunately, the new SAR government went overboard in trying to address certain issues, particularly housing, which had shown up as a top concern in opinion polls, and did not take heed.