Yet recent events raise concerns about how seriously Hong Kong is taking the forces gnawing away at its prosperity. One is the government's reaction to media reports raising valid concerns about Hong Kong's future.
My column, "Hong Kong unable to find its way," (Taipei Times, April 4, page 19) drew a rebuttal from government officials. A May 16 cover story in Fortune magazine titled, "Hong Kong: Who Needs It?" also upset the government. A month earlier, the Economist Intelligence Unit stripped Hong Kong of its No. 1 ranking as Asia's best place to do business, awarding it to Singapore. It also said Hong Kong's government was becoming less effective.
Rather than shooting the messenger, Hong Kong's energy might be better spent addressing the soaring unemployment, rampant deflation and the perception it's lost its edge. Even local businesses hired PR firm Ogilvy & Mather to improve the territory's economic image. The "Bounceback Hong Kong!" campaign misses the point that the economy needs bold thinking and policy, not spin.
Besides, a more competitive exchange rate won't end deflation. Hong Kong's prices are falling because they need to -- the place never should've gotten as expensive as it did.
"Deflationary pressure remains strong," says Anne Parker Mills, senior currency economist at Brown Brothers Harriman & Co.
There's plenty to worry about, where falling prices are concerned. The trend is slamming financial assets, boosting debt-servicing costs and undermining top-line corporate profits.
Analysts also worry about its impact on business and consumer confidence. But given how much cheaper things are across the Chinese border -- and elsewhere in Asia -- some deflation is inevitable.
That hasn't stopped some equity investors from seeing the US dollar's weakness as a plus for Hong Kong, figuring it'll stop consumer prices from falling. Trouble is, Hong Kong's troubles aren't cyclical, but structural. As Yam sees it: "This is a situation a weaker US dollar will not alter."
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