Newspaper article The Evening Standard (London, England)

Beijing Bids to Put New Polish on Its Fading Hong Kong Jewel

Newspaper article The Evening Standard (London, England)

Beijing Bids to Put New Polish on Its Fading Hong Kong Jewel

Article excerpt


WHEN Hong Kong reverted to Chinese rule in 1997, the former British colony was the jewel in China's crown. It was a major financial hub, stable and absurdly prosperous. Beijing's Communist rulers were intensely proud that the thriving centre was back in the fold as Governor Chris Patten sailed off on the Royal Yacht Britannia.

Since then, however, the jewel has lost a great deal of its lustre.

Even as China's economic boom got fully under way in the past five years, Hong Kong failed to get much of a lift. Economists say the regional financial crisis of the late 1990s pricked its property-driven asset bubble.

That set the stage for years of deflation, periodic recessions and rising jobless figures.

To add insult to injury, mainland upstarts such as Shanghai started to assert themselves more aggressively, stealing some of the growing business that used to be directed Hong Kong's way. Sars, the killer flu, also left its ugly mark. And a political crisis in July brought more than half a million Hong Kongers on to the streets to protest - successfully - against a proposed security law.

China's mandarins were rattled and have since decided to throw the city something of a lifeline. A series of concessions from Beijing has lent crucial political support to Hong Kong's embattled government and, economists say, helped to revive the territory's fortunes.

The most recent concession, announced this week, will see Hong Kong banks allowed to take yuan-denominated deposits and exchange the Chinese currency for Hong Kong dollars from next year. It is the latest in a series of moves by Beijing to loosen controls over its currency.

"The major factor is that Hong Kong people see there has been a change in the central government's attitude towards Hong Kong," says Joe Lo, senior economist at Citigroup. …

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