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Brace for a long, cold winter

The Euro debt crisis continues without any sign of abating. After some stunning twists and turns, Greece has finally agreed to the salvage plan offered by the EU. But just when EU heads are breathing a sigh of relief, Italy with its worsening debt situation is poised to drag the EU into another round of chaos. Spain and Portugal fare no better; the Euro debt crisis seems to have no end in sight. This has dealt a blow to a weak US economy, which was showing signs of a mild and slow recovery.

With its main export markets in deep trouble, China’s economic outlook can be anything but bullish. China has not developed a mature internal consumption market, so its economy still relies largely on exports. If the economic engine loses steam, a slowdown is expected.

Already the mainland property market is shrinking, with a glut of unsold flats across the country, and buyers are being discouraged by the government from making any purchases. Developers are finding it almost impossible to get financing, and are thus having to slash prices to boost cash flow. Residential prices in major cities have declined by as much as 30 per cent and are tipped to continue the down-trend; hundreds of property agency offices have closed their doors. This will adversely affect Hong Kong, which has benefited from, and become more and more reliant on, China’s growth.

In the local property market, sales have dwindled continuously since June. Recently, buyers have been finding it even more difficult to obtain mortgages as banks are tightening up, partly due to pressure from the Monetary Authority and partly due to seasonal reasons. This has driven away the last buying interest, especially in the secondary market. Estate agents are feeling the pain, with many operations undergoing cost-cutting and down-sizing. Even the office market is softening, as financial tenants are retreating, creating more vacant space in traditional office locations.

However, there are signs of relaxing on the mainland as the central bank has recently eased its capital control over the commercial banks a little. Understandably, Beijing does not want to see a significant slowdown in economic growth and, in an adverse external environment, there needs to be internal activities to keep the economic engine running. We expect there will be more relaxations on the mainland in the near future, but whether this will benefit Hong Kong will have to depend on the Hong Kong government’s policies. The current dampening measures in place will have to be lifted before a full recovery is possible. Judging from government officials’ statements of late, this is unlikely anytime soon. We are in for a long, cold winter.

By Koh Keng-shing