The state of the economy

The year 1988 saw the continuation of a major boom in the Hong Kong property market that started in late 1983. This boom reflected an increase in confidence on the effectiveness of the Sino-British Agreement of 1984 in bringing stability and prosperity to Hong Kong. According to this agreement, Hong Kong’s capitalist system and way of life will stay intact for 50 years after 1 July 1997. The prospect of a modernizing and liberalizing China was basic to this increase in confidence. The Chinese connection was believed to be positive for Hong Kong, bringing opportunities to its people and its businesses. Many commentators had discussed energetically about the enviable position of Hong Kong, and about the prospect of a Greater China comprising continental China, Hong Kong, and Taiwan as a major force on the world economic stage. All this was changed on 4 June 1989. The Beijing massacre and the ensuing clampdown of the democracy movement in China set off a major confidence crisis. The magnitude of the crisis was reflected in the dramatic drop of stock prices, with the Hang Seng Index dropping about four hundred points on the first day of trading after the massacre and about one thousand points on a cumulative basis from the announcement of martial law on 20 May till 20 June.