Page last updated at 10:47 GMT, Tuesday, 30 September 2008 11:47 UK

Hong Kong avoids outright panic

By Vaudine England
BBC News, Hong Kong

Man looks on as a screen shows Hong Kong's Hang Seng index rebounding from early sharp falls
Hong Kong shares rebounded on Tuesday after early precipitous falls

In Hong Kong, investors are watching the global economic crisis unfold with an anxious eye - and yet are less prone to panic than in the US and Europe.

Like many of its Asian neighbours, Hong Kong's economy is heavily reliant on exports to the US and Europe.

But analysts say there is also greater confidence in the overall resilience of the banking system.

This ambivalence was reflected in the stock market on Tuesday - which plunged upon opening but then bounced back.

"Usually when the US catches a cold, we get pneumonia," said financial commentator Jake van der Kamp.

"But this time, it's the other way around," he said.

Hong Kong does not have sub-prime mortgage problems, the banks are generally well run and well capitalised, and are managed in what one analyst said was a "paternalistic" way.

Some parts of the market - such as the China company shares - have been over-priced anyway, analysts agree.

"In Hong Kong, we're suffering from the mistakes of others, but Hong Kong is not at risk," said Mr van der Kamp.

"There's absolute panic over there [in the US] and here, the market recovered; it got back up after the US fell apart!" he said.

Institutions in China could slip into severe financial difficulties, he said, and mainland property and stock markets have already been declining.

Exports hit

Small investors, or those involved in the manufacture or sale of China-made exports to the US and Europe, are already feeling the pain.

A container ship from Hong Kong unloads cargo at Le Havre in France
Many of Asia's economies have deep roots in US and European markets

"I'm angry," said Annie Cheng, who has worked in the automotive industry in China and around Asia for many years.

"Everyone is hurt and there's an extremely bad impact on business - not just in Hong Kong but around the region," she said.

Inflation and high oil prices had already damaged her business, and recovery plans designed to cope with the oil price hikes have now been neutralised by the US bank failures.

"It's brought us back to square one," she said, adding her US-based company had banned regional travel after already suffering a 20% drop in business in recent months.

The danger to the many small and medium sized businesses in Hong Kong is a sudden slowdown in US and European demand for goods made in China and the rest of Asia.

"For me personally? I never worry. But it's quite a concern for how it will affect our business," said Christine Giles, whose company exports goods from China to Europe.

"We've already seen a drop in demand in the last quarter, and if people have no money to spend, well, you can imagine," she said.


The fears are about global business prospects, but for Hong Kong residents, there remains faith in the local financial system.

We must remember that in dealing with financial crises of this kind, Hong Kong has accumulated considerable experience
Donald Tsang
Hong Kong chief executive

Last week, a brief bank run saw the locally-based Bank of East Asia hand out HK$2bn (US$256m; 143m) in less than two days.

But the flap was over quickly, and many people were reassured by instant government promises of support.

"I personally don't think the banks are at risk here - the government and the big business people won't allow it," said Ms Cheng.

She and others agreed it appeared there was a system for the financial establishment to help each other out.

The government reinforced that belief on Tuesday.

The Hong Kong Monetary Authority pledged fresh funds to the market, and to any institution who felt the need.

The chairman of Hong Kong Exchanges and Clearing, Ronald Arculli, urged Hong Kong investors not to talk themselves into a panic.

He said Asia's economic fundamentals were strong for at least the next couple of years, adding he was disappointed - but not surprised - that the US Congress had rejected the bail-out plan.

"This will inevitably cause a period of instability throughout the world and the Hong Kong market will suffer as well," said the territory's chief executive Donald Tsang.

"But we must remember that in dealing with financial crises of this kind, Hong Kong has accumulated considerable experience.

"Over the last 10 years we overcame the problem of the Asian financial crisis and economic problems led by the Sars [respiratory disease] epidemic.

"We overcame them, and we must also remember that the economic fundamentals of Hong Kong are good, and our regulatory system, our fiscal economic system, are sound.

"For that reason we should have confidence in ourselves in dealing with crises of this kind," Mr Tsang said.

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