Political and Economic Confidence on the Second Anniversary of HKSAR 

Kenny Chin

香港回歸兩年後，香港政策研究所的信心指標顯示在政治、經濟層面上，都有若干的變動，本文分析變動的因素及提出預警。

In the past twelve months, Hong Kong has experienced economic turmoil and various political controversies. This article compares the indices in economic and political confidence over the past two years. After more than eighteen months of economic recession, there has been some improvement in the economy since the second quarter of 1999. By July 1999, economic confidence had almost returned to the level of July 1997. On average, however, the level of political confidence decreased by 20.4% in the period between July 1998 and July 1999.

Political confidence

Political confidence in July 1998 was at the highest level. It had declined substantially by July 1999. The most significant declines in confidence were in the areas of "Performance of the Legislature" and "Democratic Development", with a drop of 41.6% and 28.2% respectively. Confidence in three other areas - "the China Factors", i.e. the trends on "Chinese Political Situation", "China-Hong Kong Political Relations" and "One Country, Two Systems", declined by more than 15%. Confidence in the "Performance of the SAR Government" and "Performance of the SAR Chief Executive" also dropped by 12.6% and 15.4% respectively1. (See Table 1)

Political Confidence Indices

Notes﹕The indices of "Performance of the SAR Chief Executive", "Press Freedom" and "Democratic Development" were introduced in January 1998 and the index "Political Prospects of Hong Kong" was introduced in March 1998.

* indicates significant difference at 0.03 level.

Economic confidence

Changes in t he indices relating to economic confidence were different from those relating to political confidence. With the exception of confidence in the "Economic Prospects of China", economic indices dropped to their lowest level in July 1998 compared to those in July 1997 and July 1999. This was a direct result of the effect of the financial crisis on public confidence. By July 1999, a gradual recovery in economic confidence was evident. Most significant in this was confidence towards "Improvement in the Unemployment Situation". This had dropped by 57.8% from July 1997 to July 1998, but by July 1999, it had climbed back to the July 1997 level - an increase of 181.2% over the July 1998 level. The confidence level towards the "Economic Prospects of Hong Kong" dropped by 33.8% from July 1997 to July 1998 and then climbed back 12.4% in the period up to July 1999. Indices for confidence towards the "Stock Market" and the "Property Market" were started in January 1998. Confidence in these areas increased by 39.4% and 63.1% respectively between July 1998 and 1999. 

Confidence in the area of "Major Consumption Decisions" dropped by 32.8% between July 1997 and July 1998, but climbed back 44.8% between July 1998 and July 1999. Other factors such as confidence in the "Maintenance of Livelihood" and "Family Financial Well-being" resumed only very slowly. (See Table 2)

Economic Confidence Indices

Notes﹕The indices of "Stock Market" and "Property Market" were introduced in January 1998.

* indicates a significant difference at 0.03 level.

Implications: Declining confidence in China- related areas

Based on the above information, it is clear that indices relating to confidence in 'China Areas' have been declining since July 1998. Significant variations have been recorded in the levels of public confidence in July 1997, 1998 and 1999. 

Both political and economic indices of confidence relating to Mainland China were positive in the eighteen months following the handover in July 1997. By early 1999, however, confidence in China related areas began to decline. This means in past due to such factors as the reforms of state-owned enterprises, government institutions, social security and medical care. Other factors affecting confidence were mass unemployment in the Mainland, the worryingly strong Chinese reaction towards the bombing of the Chinese embassy in Yugoslavia and the Falun Gong story. A series of legal controversies concerning rendition between Hong Kong and the Mainland in the first quarter of 1999 also directly affected confidence. Debates in Hong Kong on the right of abode, followed by the decision of the Hong Kong SAR government seeking reinterpretation of the Basic Law by the National People's Congress in Beijing caused a drop in political confidence indices, such as 'Performance of the SAR Chief Executive', 'Performance of the SAR Government' and 'One Country, Two Systems'. Other reasons were related to the economic situation. The Gitic incident and subsequent issues in early 1999 slowed down the economic recovery process of Hong Kong. A substantial decrease in entreport trade between the Mainland and Hong Kong also affected the performance of the Hong Kong economy. Thus, by July 1999, while the general economic mood in Hong Kong showed signs of recovery, confidence in the 'Economic Prospects of China' had not resumed.

Events in China and China-Hong Kong relations not only affect affect levels in Hong Kong, but also in the international community. International reviews on the 'high degree of 'autonomy' and 'One Country, Two Systems' in Hong Kong was eroded in changing the first half of 1997. The international community considers that developments in Hong Kong are inevitably affected by major events a issues in the Mainland. It is both a perceptual as well as a real problem. After 1997, the Hong Kong SAR to perceived to be even more directly affected by changing political and economic developments in the mainland. In fact, the whole Chinese economy has been developing quickly. Most other Asian (and in last even North American and European) economies have been affected directly by the evolution of the Chinese economy. One significant issue will be China's entry to World Trade Organization. Hong Kong is not the only economy that will be affected by this. Nevertheless, social and legal issues have been emerging and continue to pose challenges on the special status of Hong Kong as a Chinese city.

The Hong Kong SAR should seek to consciously address the changing local and international perceptions. It should also carefully study the changing confidence of local people towards issues relating to China. The economy of Hong Kong should remain 'outward' rather than 'inward' looking (or 'Mainland oriented'). The political and legal system should be able to stand the test of public controversies. Hong Kong should strive to maintain her status as an autonomous, international, rather than a regional or national, city. The changing local perceptions and the resurgent confidence levels in early 1999 deserve close study.

Note:
1. This information is consistent with similar survey findings of the same period. Ming Pao 23 June 1999 reported on findings of Social Sciences Research Centre of the University of Hong Kong, and Apple Daily 30 June 1999 reported on the findings of the Hong Kong Institute of Asia-Pacific Studies of the Chinese University of Hong Kong about a drop of the public confidence in the performance of the SAR government.

Mr. Kenny Chin is the Researcher (Statistics) of the Hong Kong Policy Research Institute.