Cyclically, the recent strength of the US economy should help the global economy to turn around, and HK should also benefit in the process. Unfortunately, being a services-oriented economy which typically rebounds slower than manufacturing economies, HK's economic numbers remain weak in recent months while some economies in the region are showing more obvious signs of improvements. HK's economic numbers in the coming months will continue to be relatively weak, although the latest unemployment rate of 6.8% is much better than expected. Deflation will worsen (to around -4%, partly due to the government's concessionary measures introduced in Antony's Leung's Budget) and growth will continue to be negative during the first few months of 2002.

In a discussion forum on the Budget broadcast live in RTHK about 10 days ago, I highlighted the point Antony Leung made in his Budget that "the outlook for Hong Kong is bright in the medium and long term". I said further that HK is positioning itself for "The Empire To Strike Back". 2002 is likely to be a year when HK's economy will bottom out, not only cyclically, but also structurally.

Apart from the global economic rebound, my optimism on HK's turnaround is based on my assessment that after a number of years of soul searching, HK is now much clearer about what it should do to make the SAR kick again.

Mr Tung has a famous saying, "China good; Hong Kong good". But as it turned out in the past few years, HK was not good when China was good. For a long time, it was not clear to most people why HK was not prospering as China continued to grow. Some people blamed the linked exchange rate. But gradually, the key issues facing HK are much better understood. The collective wisdom of the elite in HK that emerged in the past few years of deliberation is very well distilled by Antony Leung and laid out clearly in his Budget speech. Two key points in all these are (a) HK's only way out is to move up the value added chain, and (b) in order to do this well, one major issue to sort out is the "gortex" border -- the current border allows resources from HK to flow into the Mainland but restricts the flow of resources out.

History has shown that all big cities have to re-invent themselves every once in a while. In the case of HK, I think the efforts in analyzing and understanding the problems HK faces, and what needs to be done, have come to the point when people are beginning to see the light.

The article "Antony Leung's economic vision: another important milestone in HK's strategic re-positioning" explains the background and elaborates on the points highlighted above.