Regular Index

The June-2000 PRI Hong Kong Free Market Index (FMI) recorded as 98.0. The slight drop of 2.4% from that of December-1999 is not statistically significant. Indeed, the index values of the seven factors also remained steady (based on a +/-5% standard) over the past six months. (Table 1) According to those panel members being surveyed, they expressed that such market freedom in Hong Kong has no major change when compared to six months ago.

The marginal decrease of the June-2000 FMI was largely attributed to the noticeable decline of the perceived index value of Market Competition and Pricing Flexibility by 5.2% and 6.6% respectively, although both changes were also statistically insignificant. (Table 2) In fact, there were comments from our panel members concerning that dominant players had been increasingly exploiting their market power in some business areas.

No qualitative opinions on Price Flexibility were received. However, the simultaneous price changes arranged by mobile phone operators at the beginning of this year could probably be one of the typical examples affecting the panel members' response.

The overall index value on Government Influence recorded a moderate increase of 2% in the first half of 2000. However, the objective index showed a 3.4% decrease in government involvement over December 1999. Such reduction was mainly contributed by the 3.2% decrease in the number of civil servants to total labour force proportion from the third quarter of 1999 to the first quarter of 2000.

Nevertheless, this decrease had completely been offset by the 6.8% surge of the perceived index when compared to the second half of 1999. In fact, some respondents were concerned about the ability of the SAR Government in maintaining Hong Kong's free market environment. One expressed the view that the government increasingly involved and intervened in a number of business sectors. Another was concerned about the rapid changes in policy implementations such as the sudden cease of implementing the target of building 85,000 new flats a year. Also, one worried that market freedom was adversely affected by those compulsory programmes such as MPF, potential healthcare insurance plan, etc.

The index value on Resource Mobility rose slightly by 3.4% during the first half of 2000. In particular, its objective index recorded an apparent increase of 5%. Such an increase could result from a significant increase in the activities of the fund investment industry, and the improved property market in Hong Kong. The fund investments in Hong Kong surged by 119% from the third quarter of 1999 to the first quarter of 2000. The real estate sales and purchase transactions also rose by 39% between September 1999 and March 2000. Moreover, the fall of the duration of unemployment from 97 days to 90 days between the third quarter of 1999 and the first quarter of 2000 may have contributed to the rebound of the Resource Mobility index.

Special Ad-hoc Survey

In the June-2000 opinion survey, we asked the panel members' assessment on five selected ad-hoc issues, which were considered to have possible impact on Hong Kong's free market status. A total number of 140 senior business executives made an evaluation through a scale range from "Extremely Negative"(-3) to "Extremely Positive"(+3). Table 3 shows the detailed results. The five issues are shown as follows:

1. The Financial Secretary did not introduce any major change to the tax structure in his March Budget.

2. China would enter into the World Trade Organization soon.

3. The Central People's Government Liaison Office's deputy director, Wang Fengchao, indicated publicly that Hong Kong's media should not treat any remarks regarding Taiwan's independence as general news.

4. An official of the Central People's Government Liaison Office asked "Hong Kong businesses to curtail their dealings with pro-independence Taiwan business people".

5. Chief Executive Tung Chee-hwa expressed that the target of 85,000 new flats a year had ceased to exist as of 1998.

Generally, the senior executives welcomed the Financial Secretary's decision on not introducing any major change to the tax structure in his March Budget. About 47% of the respondents agreed that such decision should have positive effect on Hong Kong's free market status. 41% of them also considered that the impact would be "Just Right". Less than 9% of them expected that the impact would be negative.

Most of the senior executives had positive expectations on China's accession into the World Trade Organization. 84% of them predicted that the accession would have positive effect on the free market status. Only about 9% disagreed with such an opinion, and near 4% considered that the impact would be "Just Right".

The survey results revealed that a majority of the respondents (77%) indicated that Wang Fengchao's indication towards Hong Kong's media regarding the treatment of Taiwan's independence news would adversely affect the free market status in Hong Kong, while only 4% had opposite views. Approximately 14% of them expected that the impact would be "Just Right".

Similarly, almost 80% of the respondents expressed their concerns about the negative impact of the remark by an official of the Central People's Government's Liaison Office asking Hong Kong businesses to curtail their dealings with pro-independence Taiwan business people. Only about 6% and 10% of them expected that the impact would be positive and "Just Right" respectively.

The business executives had quite dichotomous views on the cease of the target of building 85,000 new flats a year. 41% of the respondents expected such decision would have a positive impact on the free market status, while approximately 44% expected a negative impact instead. 9% of them considered that the impact would be "Just Right". However, a few panel members gave further comments on this issue. They said that the reduction of government's involvement in the housing sector was positive for the free market, but the way that the Chief Executive handled the entire issue has negatively affected the credibility of the government.

Methodological Notes

The FMI is a standing research project conducted by Hong Kong Policy Research Institute bi-annually. Using June 1997 as the base period, the Index aims at measuring the changes of the Hong Kong's free market status after the reunification. The FMI comprises seven sub-indices, namely "Government Influence", "Infrastructure Sufficiency", "Legal Protection", "Information Flow", "Resource Mobility", "Market Competition" and "Pricing Flexibility". The FMI is derived by calculating four "Objective" indices (total of 16 economic data) and the scores given by 140 senior business executives on seven "Perceived" indices (See Table 2). All the differences of the seven "Perceived" indices between June-2000 and December-1999 surveys were found to be statistically insignificant.