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Thursday, 21 February, 2002, 13:55 GMT
Hong Kong joblessness soars
Woman checks employment bureau window
Manufacturing jobs have shifted to mainland China
Unemployment in Hong Kong has surged to its highest level for twenty years, official figures showed.

And tax rises could be on the way for those in work after a government report found deep-seated problems with the tax system were likely to lead to rising budget deficits.

Unemployment hit 6.7% in the three months to 31 January 2002, beating the worst levels seen during the Asian financial crisis, when it peaked at 6.4% in Spring 1999.

Unemployment is now higher than at any time since the current system of measuring joblessness was introduced in 1981.

The figures outpaced economists' expectations for joblessness of 6.4%.

Howard Gorges of South China Brokerage told the BBC's World Business Report that Hong Kong is seeing both growth in the size of the labour force and job cuts by companies.

Worse to come?

Financial Secretary Anthony Leung said unemployment could rise further because it is a lagging indicator, but that Hong Kong's economy is nonetheless on the mend.

Although "the economy has improved with the recovery in the external economy, unemployment may go up in the immediate period", said Mr Leung.

However, some analysts took a bleaker view of where the economy is heading.

Jun Ma, senior economist at Deutsche Bank in Hong Kong, was surprised by the figure.

"And because unemployment is a lagging indicator, it implies that Hong Kong's fourth quarter may have been even worse than many people expected," he said.

Hi-tech woes

Hong Kong's economy is hovering on the brink of recession. It shrank 0.3% in the July-to-September quarter and negative gross domestic product (GDP) for the final three months of last year would mean recession.

Hong Kong is struggling with the collapse of global export markets for high tech goods and faces competition from mainland China as a base for low-wage manufacturing jobs.

Many people have been forced to take pay-cuts, property values have dropped and personal bankruptcies have risen.

Taxes fall short

But taxes may eventually have to rise to protect Hong Kong's currency, analysts said.

At present, Hong Kong has some of the lowest taxes in the world, with a top rate of 15% for individuals and 16.5% for business.

A government report into the tax system has found "unequivocal signs that even when the economy returns to 'normal growth', the budget deficits will remain and indeed worsen".

"To continue the current fiscal lifestyle is therefore not an option", it said.

The tax revenue reserves that guarantee the Hong Kong dollar's peg to the US dollar and underpin its economic stability are shrinking.

Fiscal reserves of HK$369bn could be whittled away to zero by 31 March 2009, according to Treasury Secretary Denise Yue.

She forecast budget deficits would continue for the next five years.

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 ON THIS STORY
Howard Gorges, South China brokerage
"It [unemployment] has been rising steadily during the last three years"
See also:

17 Jan 02 | Business
Hong Kong entrepreneurs struggle on
17 Jan 02 | Business
Hong Kong unemployment surges
08 Jan 02 | Business
Hong Kong shoppers take fright
05 Dec 01 | Business
PCCW adds to HK job cuts
23 Nov 01 | Business
Hong Kong prices keep falling
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