S.T.F.A. Lee Shau Kee College

Name: Chan Man Hoi  (36)                         Form: 6A

Source: Hong Kong Economic Times (30/7/1999)

Comment:

The recent financial crisis in the Asian region triggered a sharp downward adjustment in Hong Kong's asset markets, with local interest rates rising in defense of the linked exchanged rate system. Falling property values would lead to a contraction in bank credit. Lower prices mean lower valuations and accordingly, a smaller amount of loan granted on the same property with the decline in collateral values, banks may also have to reduce the credit available to existing borrowers. Hong Kong's domestic interest rates were subject to strong upward pressure which lowered incentive of investment.

Also, the sustained strength of the Hong Kong dollar has made the territory less attractive to tourists in comparison with other Asian countries. Along with the slow-down in economic growth, poor employment prospects were to be expected. A series of lay-offs in the retails, atering and financial sectors had already indicated the less promising outlook of the local labour market.

Many people claimed that high unemployment rate was mainly due to structural change in Hong Kong economy. However, from my point of view, Hong Kong's unemployment figures would increasingly reflect the cyclical factors invovled. After more than a decade of economic restructuring, the service sector has also fallen to only 12% of the total labour force, indicating that there is increasing less room for further release of unwanted manufacturing labour. This suggests that the change in the jobless rate in future will be more in line with the territory's economic cycle. Due to the nature of a service-oriented economy that has less ability to stock up inventories, the need to lay-off workers at times of economic hardship will be more pressing than in the manufacturing sector.

At times when structural unemployment dominated, it was important for the Government to provide retraining programmes to assist those workers released from sunset industries to re-enter the labour market in other economic sectors. However, with the issue of structural unemployement gradually fading, resources should be increasingly devoted to alleviating hte hardship caused by the economic downturn.