Sarah Beattie (MPhil Student)

As part of my MPhil in political economy for the Management, Economics and Politics Programme, I spent this past October (1997) in Hong Kong conducting research on the city's economy. The purpose of this self-structured research trip was to conduct interviews with government officials and business leaders and to gather data on foreign investment in Hong Kong. My dissertation explores the extent of economic integration of the Chinese and Hong Kong economies and resulting economic implications for the territory. October was an excellent time to be in Hong Kong, and it was auspicious to have my trip coincide with crisis in the Hong Kong stock market and a speculative attack on the Hong Kong dollar.

As an undergraduate I conducted research on East Asia, and thus I previously had developed an interest in the region. It was a privilege, therefore, to travel to Hong Kong during its initial years of transition under Chinese control. In encouraging my trip, Professor Gavin Reid was correct in noting that the trip would add a new dimension to my understanding of Hong Kong. On one of my first few days there, I took a tram to the top of Victoria Peak on the island from where there are spectacular views of the city. From this vantage point the city's buildings seemes piled on top of one another, and yet there were many new construction projects in what little space there was available. Obviously, the scarcity of land in Hong Kong is a central factor around which much of the economy revolves, shaping government policy, dominating the Hong Kong stock exchange, and making Hong Kong one of the most expensive places in which to set up offices. Government land policy figured largely in my meeting with the Deputy Secretary for the Treasury, Mrs Carrie Lam, who explained to me the continuous land reclamation project of the Hong Kong government. The current government policy involves further broaching of the harbour, providing more land for road projects and office buildings. However, it was this particular aspect of government policy which worried Dr William Overholt, Managing Director at Bankers Trust in Hong Kong. In a speech to members of the American Chambers of Commerce which I attended, Dr Overholt warned that increasing activity in the property market could overheat the economy. As it turned out, exorbitant interest rates in Hong Kong, used as a tool to defend the currency, pressurized the property market and undermined property company stock values.

Hong Kong's economy increasingly was put under pressure during October by the banking and currency crises that were affecting other countries in Southeast Asia. At the end of October Hong Kong succumbed due to its bannking and trading ties with these regional economies, and stocks took a dive as international investors' confidence was undermined in local and regional stocks. Hong Kong continues to suffer in the East Asian crisis which has affected countries in Europe and the Americas, and which has revealed that even the strongest of the East Asian miracle economies, including Korea and Singapore, are not impervious to economic crisis. The global economy is precisely why it is important to focus upon what is happening in Hong Kong markets: Hong Kong currently seves as an international centre and base from which companies from around the world invest and trade in Southeast Asia, and many of these companies have set up their regional headquarters in Hong Kong. What happens in Hong Kong will inevitably and ultimately affect the conomies of counrties around the world.

Hong Kong's economy is also uniquely defined by its exchange rate policy and the peg of the Hong Kong dollar to the US dollar at a fixed rate of US$1 = HK$7.78. One of my meetings was with Mr Chad Leechor, Head of Economic Division at the Hong Kong Monetary Authority (HKMA), the territory's quasi-central bank. At the meeting he reaffirmed that the HKMA would do whatever is takes to defend the peg, and in fact had the reserves to back the HK$ seven times over. This meeting was a few days before the crisis initially affected Hong Kong, at which time the HKMA solidly defended the HK$. There is still some speculation as to whether Hong Kong should devalue to keep exports competitive with its Southeast Asian neighbours, but as Mr Leechor explained the peg is vitally important for the maintenance of confidence in the territory's stability.

One of the most influential meetings I had was with Mr Jamie Allen, former editor of the Economist Intelligence Unit's Business Asia. Mr Allen's most recent book is particularly interesting for me because it explores some of the issues of Chinese involvement in the Hong Kong economy as well as the potential for corruption becoming a problem in Hong Kong. As we discussed, Hong Kong cannot allow the border to become blurred so that the city is interchangeable with southern China, for Hong Kong will then lost its international edge.

Among others, one meeting I had while in Hong Kong was with the Director of China Trade at the Hong Kong Government Trade Department, with whom I discussed the growing trade between Hong Kong and China. I also met with the Head of China Research at Paribas Equity Asia, who candidly acknowledged the expansion of Chinese company subsidiaries into the Hong Kong economy in order to raise capital and gain managerial experience. It is this expansion of the 'red chip' companies into Hong Kong which I am further exploring in my thesis. I also spent quite a bit of time at the Hong Kong Trade Development Council Library, which stocks enormous amounts of material relating to Asian business and trade. At the library I looked through academic journals on China and Southeast Asia, compilations of statistics for Chinese and Hong Kong trade and investment flows, and individual company reports.

I was able to meet with private business leaders, including the director of Asian infrastructure International, the managing editor of a Hong Kong based magazine; and a maager at New T&T, a multinational telecommunications company owned by the Wharf Group, a Chinese conglomerate. The purpose of these meetings was to ascertain executives' confidence in the Hong Kong economy and to discuss their business experiences in Hong Kong in the past few years.

During my time in Hong Kong I was able to experience first-hand the operations of an international financial centre and further develop my analysis of the integration of the Hong Kong and Chinese economies. With this in mind, I believe my trip was a success, as I was able to compile a wealth of data about the operations of the Hong Kong economy, speak to people who make important economic policy decisions, and learn first-hand from these people about certain developments and trouble spots to watch for in Hong Kong now and in the next few years.