For three decades, Hong Kong has thrived economically. As the city-state ponders its political path, its economic future is at crossroads. For three decades, Hong Kong has thrived economically along with the Chinese mainland. Now its economic future is at a crossroads. According to a poll conducted by South China Morning Post, Hong Kong residents […]
As the proposed free trade zone is about to take off in Shanghai, so will Hong Kong have to change. The old days of complacency are over. Last January, the newly-elected mayor of Shanghai Yang Xion unveiled Shanghai’s plan to develop the mainland’s first free-trade zone, starting in the Yangshan deep-water port, Pudong airport and […]
A few weeks ago, the Economist put out its quarterly gauge of house price values. Australia just beat out Hong Kong as the most overpriced market in the developed world, with an overvaluation of 56%. Japan was by far the most undervalued market, with an undervaluation of 35%. The only other housing markets that were undervalued according to the Economist were Germany (12%) and the U.S. (7%). (This was well before the earthquake and tsunami in Japan so it is hard to say what impact those events will have on house prices).
In the past couple of years, Hong Kong has witnessed a sharp increase in property prices. This has led some to claim that the time has come to change Hong Kong’s “Linked Exchange Rate System”.
This represents a misdiagnosis of the current situation and the wrong prescription for Hong Kong.
Continuing my travels through Asia for the launch of our October 2010 Regional Economic Outlook: Asia and Pacific, I am writing to you today from Singapore. In my last post, I focused on the near-term outlook and challenges for Asia. Today, I turn to the key medium-term challenge—the need to rebalance economies in the region away from heavy reliance on exports by strengthening domestic sources of growth. This is against a backdrop of the need to rebalance global growth that was emphasized over the weekend by the ministers of the Group of Twenty industrialized and emerging market countries.
One by-product of the massive capital reallocation to emerging market economies, highlighted by RGE for some time, has been a sharp acceleration in foreign exchange reserves accumulation. Central banks, particularly in emerging market economies, have been adding reserves at the pace of an average US$250 billion per quarter since Q2 2009 as they sought to reduce the appreciation and volatility of their currencies. IMF data reported that the global reserve stock exceeded US$7.5 trillion in Q3 2009, well higher than aggregate pre-recession levels. October and November data suggest that Q4 looks to be more of the same story. At this pace (US$1 trillion annualized), reserve accumulation in excess of the deficits of the U.S. and other “overspenders”.