Archive for 九月, 2011

Yuan falls on profit taking, risk concerns

The yuan fell sharply against the US dollar in the Hong Kong offshore market on Friday, extending Thursday’s slide – another sign that global investors are scrambling to lock in their profit and exit emerging markets in the face of volatility in global markets.

Friday afternoon, the yuan traded in Hong Kong was at 6.50 per US dollar, a 0.15 yuan discount to the onshore rate – its steepest since the Hong Kong market was launched in June 2010.

Typically, the yuan in the offshore market trades at a premium to the onshore rate as the currency is freely convertible in Hong Kong and investors have purchased it aggressively, betting on further gains.

With Asian currencies coming under severe selling pressure this week amid a worsening euro zone debt crisis and on the heels of the US Federal Reserve painting a gloomy economic outlook, traders said some hedge funds and banks had been liquidating long yuan positions.

Liquidity in the interbank markets also dropped sharply and price swings have magnified.

One senior trader at a European bank in Hong Kong said only about $500 million has been traded so far, lower than Thursday and much lower than the daily average volume of more than $1.5 billion.

Mark Wan, chief analyst at Hang Seng Bank Investment, told China Daily that most emerging markets’ local currencies have been depreciating against the US dollar recently as the pessimistic economic outlook in the US, Europe and Japan has driven investors to exit from these markets.

“Investors tend to hold money in a gloomy economy. Hot money is exiting from emerging markets, including China, as importers including the US and the Europe are dismal in economic growth and the outlook,” said Wan.

Benchmark one-year offshore dollar/yuan forwards jumped to 6.4098 as of 7:01pm on Friday from 6.3773 on Thursday, implying further yuan depreciation in the next 12 months.

The US dollar strengthening against the yuan is likely to continue throughout the rest of the year, until the US government initiates another round of quantitative easing next year, Wan predicted.

Reuters contributed to this story.

litao@chinadailyhk.com
China Daily
(HK Edition 09/24/2011 page2)
http://www.chinadaily.com.cn/hkedition/2011-09/24/content_13783801.htm

City residents less keen on buying properties

HKU study says sky-high home prices weighing on affordability

Hong Kong residents’ desire to buy a property has lessened significantly as sky-high home prices weigh on their affordability, according to an annual survey by the University of Hong Kong.

The study released Wednesday says that some 1.63 million people in Hong Kong intend to buy property, which is 337,000 less than the 1.97 million in the same survey a year ago.

Confidence in buying a residential home also deteriorated further, as 64 percent of respondents believe that they have no hope of owning property in the next 10 years if prices remain high – an increase of 4 percentage points.

Price expectations also soared more than 50 percent to an average HK$3 million per unit compared with HK$1.9 million to HK$2 million last year.

“Compared with last year’s findings, more people expected that property prices would drop in the future,” said Lawrence Lam, director of sales and secured lending at Citibank, which commissioned the survey, during a media briefing on Wednesday.

Only 44 percent of respondents expect the city’s home prices will rise in the next two years while 35 percent forecast prices to decline.

The study was based on a sample of 1,070 cases interviewed from August 15-29. It estimates that about 2.88 million of the city’s adults own residential property with an average age of 49.

Joseph Tsang, managing director of Jones Lang LaSalle, said the relatively small number of samples, however, basically display the current state of the property market.

“Hong Kong people always prefer to invest in properties but rising prices and the rising down-payment and mortgage rates are shutting doors to more and more people,” Tsang told China Daily in a telephone interview.

Residential property trading activities have slowed since the end of 2010, following the introduction of the Special Stamp Duty and earlier rounds of macro tightening measures. Sale and purchase agreements averaged about 9,200 a month during the first half, down almost 20 percent from last year while speculative activities also softened, the Hong Kong Monetary Authority said in its half-yearly report released Wednesday.

But Hong Kong’s rising property prices continued to erode housing affordability with the income-gearing and price-to-income ratios pushing towards their 1997 peaks, the report noted.

Nicole Wong, regional head of property research at CLSA, however, believes that the city’s home prices have peaked.

Wong expects overall residential property prices to drop by 5 percent in 2012, with a wider decline in the mass real estate market than in the luxury segment.

litao@chinadailyhk.com
China Daily
(HK Edition 09/22/2011 page2)
http://www.chinadaily.com.cn/hkedition/2011-09/22/content_13763060.htm

HSBC: Over 50% of city’s wealthy hold yuan deposits

The thirst for yuan assets seems to be unquenchable according to a survey which indicates that 53 percent of the city’s wealthy residents hold yuan deposits and nearly a half plan to accumulate even more in the second half.

Meanwhile, 51 percent of Hong Kong’s richest 10 percent of the population currently holds yuan investments while 31 percent of respondents from the city indicated plans to make yuan investments in the second half in 2011, the HSBC Affluent Asian Tracker released on Tuesday shows.

Bruno Lee, regional head of wealth management for HSBC in Asia-Pacific, said that investment related to the gradual appreciation of the yuan has become an increasingly important part of Hong Kong’s wealth creation.
The wish of Hong Kong people to hold more yuan deposits is clearly encouraging alongside their growing appetite for yuan investment products, Lee said during a media briefing on Tuesday.

It compares with a similar survey released by the bank in July 2010, which at that time concluded the number of local wealthy people who hold yuan investments was still less than a quarter.

Kevin Lai, an economist at Daiwa Capital Markets, said the yuan’s offshore market development in Hong Kong has witnessed tremendous improvement over the past year, driven by the yuan’s appreciation and a series of favorable policies that spurred investors as well as some enterprises to hold more yuan deposits and investments.

“With the yuan gaining 4 to 5 percent against the Hong Kong dollar last year plus the 1 to 2 percent interest from the bank, the aggregated returns on yuan deposits outperformed a great number of other investment tools given the recent global economy and sluggish stock markets,” Lai told China Daily.

The rapid rise of the offshore yuan has taken the world by surprise as in little more than a year since its introduction in July 2010, it has become the fastest growing currency market, Daniel Hui, senior foreign exchange strategist on the offshore RMB with HSBC, wrote in an email note on Tuesday.

Yuan deposits in Hong Kong have grown by over 250 billion yuan in the same period and now account for nearly 10 percent of all deposits in Hong Kong, displacing other more traditional choices of overseas currency deposits like the US dollar and the euro, Hui wrote.

The HSBC study released Tuesday examined the top 10 percentile of the population by average liquid assets and mortgage value in eight regional markets, including the mainland, Hong Kong and Taiwan.

People in Hong Kong qualified for the survey held on average $315,116 in liquid assets, the highest among all the economies. Those from the mainland and Taiwan possessed an average of $159,253 and $156,936, respectively.

More than a quarter of wealthy Asians plan to invest in greater China and Southeast Asian funds and equities in the next six months, the report shows.

“Despite the recent market volatility and rather unclear economic condition, Asia remains robust in terms of growth potential. Affluent investors will continue to look to the region for wealth opportunities,” Lee explained.

litao@chinadailyhk.com
China Daily
(HK Edition 09/21/2011 page2)
http://www.chinadaily.com.cn/hkedition/2011-09/21/content_13744919.htm

Govt to sell 8 residential sites in Oct-Dec quarter

Secretary for Development Carrie Lam reiterates government’s land policy

The government will maintain its relatively fast pace of increasing land supply as it plans to sell eight residential sites to provide about 5,000 new flats next quarter, according to Secretary for Development Carrie Lam.

Five residential sites – one in Tseung Kwan O district, one in Tuen Mun district and three on Lantau Island – will be put up for sale in the coming October to December quarter, which are likely to produce a total of 1,770 units, Lam told reporters on Friday.

Three West Rail property development projects are also scheduled to be disposed of by the end of the year, generating a total of 3,326 new units, according to Lam.

The combined supply of 5,000 units in the coming quarter compares with 6,000 units in the July to September quarter and 3,000 units in the April to June quarter.

The goal of boosting land sales and ensure the supply of 20,000 apartments annually in Hong Kong will stay unchanged, Lam said, adding that the pace of land sales this year is in line with the government’s target.

However, the government said it will halt land auctions during the next three months. All the land sales will be carried out through tender, which is ideal given the current market sentiment as measured by government surveyors, according to Lam.

Wong Leung-sing, associate director of Centaline Property Agency Limited, believes that the series of lackluster land sales recently is the reason why the government favors the tender process.

The government auctioned land at Tseung Kwan O district for HK$3.12 billion last week, missing even the low-end estimates of HK$3.3 billion in a Bloomberg News survey.

Another land auction and one tender both fell below market estimates in August, after global stock markets were roiled by the US debt downgrade.

“The government is taking a prudent approach,” said Wong. “The Tseung Kwan O, Tuen Mun and the three MTR sites up for sale are all very large ones. If these public auctions fall short of estimates again, it will critically affect market sentiment.”

Home transactions in Hong Kong have slowed to only half the average level for the past two years after home prices surpassed the previous high of 1997. A Centaline report released on September 2 showed that only 5,439 private residential transactions were recorded in Hong Kong in August in comparison with an average of some 10,000 home transactions per month during 2010 and 2011.

“In order to stabilize our real estate market and ensure healthy development, continuing to provide adequate land supply is a focus of government policy,” Lam said on Friday.

The two residential sites in Tseung Kwan O district and in Tuen Mun district to be sold next quarter will be required to provide a minimum amount of small and medium-sized apartments to meet market demands, according to Lam.

The government will also sell two commercial sites, one in Sha Tin and the other in Hung Hom, during the coming quarter.

litao@chinadailyhk.com
China Daily
(HK Edition 09/17/2011 page2)
http://www.chinadaily.com.cn/hkedition/2011-09/17/content_13724208.htm

Sun Hung Kai net income soars

Full-year underlying net profit to June 30 increases 55% to HK$21.5b

Sun Hung Kai Properties Ltd, the biggest developer by market value in the world, said full-year underlying profit jumped 55 percent to a record high boosted by both strong home sales and rental income in Hong Kong and the mainland.

Net income excluding revaluation gains and deferred tax for the financial year ended June 30, 2011 rose to HK$21.5 billion, from HK$13.9 billion a year earlier, the Hong Kong-based developer told the city’s stock exchange on Thursday.

The result compares with the HK$19 billion median estimate surveyed by Bloomberg News and the average HK$18.1 billion forecast by Thomson Reuters.

Profit generated from property sales in Hong Kong and the mainland increased by 152 percent to HK$16.65 billion from HK$6.62 billion a year earlier, the blue-chip giant said.

Net rental income at the developer rose to HK$9.51 billion from HK$8.31 billion a year earlier. Sun Hung Kai owns the city’s two tallest buildings – International Finance Centre II on Hong Kong Island and the International Commerce Centre (ICC) in West Kowloon.

New properties including the ICC in Hong Kong as well as Shanghai IFC on the mainland have started posting increased earnings, the developer said, adding that higher rents for new leases have contributed to the robust rental income.

Thomas Kwok, vice chairman of Sun Hung Kai, said the group is launching 3,000 new home units in Hong Kong this year, which is expected to generate HK$28 billion the home sales.

“We will stick to our strategies in land reserves. Once these projects are launched, we will continue to look for land banking opportunities, particularly in Hong Kong,” Kwok told a media briefing on Thursday.

Despite rising mortgage rates and concerns about a property bubble in the city, Sun Hung Kai has spent more than HK$11 billion buying sites from the Hong Kong government this year, Bloomberg data shows.

The company also purchased land with a gross floor area of 5.6 million square feet in Hangzhou and Shanghai last year, in a bid to build high-end residential units, a shopping mall, offices as well as a five-star hotel.

“For large-scale developers, current market sentiment is not crucial to them in replenishing land reserves as construction will be completed in three years or even more, and there may be a totally different cycle in the property market by then,” Kenny Tang, general manager of AMTD Financial Planning Ltd, told China Daily.

As of June 2011, Sun Hung Kai’s land bank amounted to 44.2 million square feet in Hong Kong and 86.1 million square feet on the mainland.

The stock rose HK$1.5 or 1.49 percent to close at HK$102.4 in Hong Kong trading on Thursday.
The company distributed a final dividend of HK$2.40 per share. Together with the interim dividend of HK$0.95 per share, the full-year dividend amounted to HK$3.35 a share, an increase of 24 percent versus HK$2.70 last year.

In a separate statement, Sun Hung Kai said vice chairmen Thomas Kwok and Raymond Kwok have been appointed joint chairmen of the company. They will replace Kwong Siu-hing, the chairwoman who currently controls the company, effective at the shareholders meeting on December 8.

litao@chinadailyhk.com
China Daily
(HK Edition 09/16/2011 page2)
http://www.chinadaily.com.cn/hkedition/2011-09/16/content_13712228.htm

Evergrande to meet 2011 sales target

Evergrande Real Estate Group Ltd, the mainland’s second-largest developer by sales, said on Wednesday it has completed 86 percent of its full-year sales target as of August, driven by buoyant demand in second and third-tier cities.

The Hong Kong-listed developer achieved contracted sales of 9.10 billion yuan ($1.4 billion) in August 2011, up 105.0 percent from 4.44 billion yuan a year earlier. It also grew 4.8 percent month-on-month from sales of 8.68 billion yuan it registered in July.

Evergrande’s sales for the first eight months totaled 60.1 billion yuan, leaving less than 10 billion yuan to achieve its full-year sales target of 70 billion yuan in 2011, Chief Executive Officer Xia Haijun said in Hong Kong on Wednesday.

“The 70-billion-yuan full-year sales target is very likely to be completed in October as we are very optimistic about the week-long holiday sales next month,” said Xia.

Evergrande were one of the few large developers on the mainland less affected by the government’s efforts to quell the hot property market in first-tier cities as 38 percent of its projects are in second-tier cities while 60 percent are in third-tier cities.

However, the central government this year has extended restrictions on house purchases in more second- and third-tier cities that have witnessed excessive property price growth.

Commercial banks in many of these places have raised downpayment requirements and in some cases have halted individual property loans altogether.

However, strong demand and relatively cheaper home prices in these cities has helped the group sustain its growth, Xia said, adding that 38 out of its 95 on-sale projects in the first eight months have been affected by the government measures while these projects have contributed some 51 percent of the group turnover for the period.

Average selling prices stood at 6,267 yuan per square meters in August, compared with 6,327 yuan a year earlier and 6,719 yuan for the first eight months.

A Credit Suisse Group report dated Wednesday estimated that the volume of housing transactions on the mainland will probably decline in the second half due to further monetary-policy tightening measures and a surge in housing supply.

Shares of Evergrande tumbled HK$0.23 or 6.17 percent to close at HK$3.5 on Wednesday.

litao@chinadailyhk.com
http://www.chinadaily.com.cn/hkedition/2011-09/15/content_13689507.htm

Zhongwang seeks domestic safe haven

Although exports to the US have been severely hurt by anti-dumping measures on aluminum products, the company said its plan to shift focus to the mainland is starting to bear fruit. Li Tao reports.

In August, China Zhongwang Holdings Ltd, Asia’s largest manufacturer of industrial aluminum extrusion parts, reported that the group’s net profit for the six months ended June 30, 2011 declined by 80 percent this year to 412 million yuan ($64.5 million) from 2.1 billion a year earlier.

This followed the publication of its 2010 full-year results in March whereby net profits declined 26 percent year-on-year. Zhongwang, which had previously been heavily dependent on the US market, basically halted its exports to that country after the American authorities initiated an anti-dumping and countervailing duties investigation in April of last year.

Nevertheless, Zhongwang’s significant improvement in its mainland business suggested that the group’s strategic transformation on the distribution of its portfolio has delivered notable results, Vincent Cheung, chief financial officer of the group, told China Daily in an exclusive interview.

According to a statement to the Hong Kong Stock Exchange in August, Zhongwang’s revenue from overseas markets stood at 88 million yuan in the first half of 2011 compared with 3.82 billion yuan during the same period last year. And first-half domestic sales, which were reported to have come in at 4.19 billion yuan, are up by 57.9 percent compared with the same period in 2010.

The increases of 94 percent in terms of sales and 87 percent in total revenue quarter-on-quarter to June 30 also point to the fact that Zhongwang’s strategic decision to focus on the mainland was successful, according to Cheung.

“The second quarter results are higher than our expectations, as the company successfully increased its domestic market share,” Didier Zheng, an analyst from SWS Research wrote in a report dated August 15, 2011, adding that the domestic market accounted for 98 percent of the company’s sales in the first half of 2011.

Even though the company’s gross margin continued to shrink in the second quarter, driven by much lower processing fees as a result of fierce competition in the domestic market, the company could still make up for that with a higher-than-expected volume of sales, the report added.

Industrial aluminum extrusion products have been widely used in vehicle manufacturing and renewable energy industries. The high profit margin, which could reach up to 50 percent in overseas markets such as the US, attracted a great number of domestic manufacturers including Zhongwang, which was founded in 1993.

Despite the fact that mainland enterprises are late starters compared with other players, sustained investment in key production equipment as well as research and development has enabled the whole industry to expand rapidly on the global market.

Cheung admitted that with the gross profit margin from sales to the overseas market more than double that of the average 20 percent in the domestic market, Zhongwang had previously poured most of its capacity to international markets instead, even though the central government had also unveiled a 4 trillion yuan economic stimulus plan to boost the domestic economy following the global financial meltdown in 2008.

In 2009, Zhongwang sold a total of 160,000 metric tons of products worth more than $800 million to the US, which accounted for almost 41 percent of the group sales.

However, the honeymoon didn’t last long after the US Commerce Department initiated investigations in April 2010 on mainland industrial aluminum extrusion product makers – all of which were legally required to deposit the duty owed until a final ruling was reached.

And according to the final countervailing and anti-dumping rulings by the US Commerce Department dated in March, certain aluminum goods imported from China will be subject to a countervailing duty of 374.15 percent and an anti-dumping duty of 33.28 percent over the next five years.

Lu Changqing, vice-president of Zhongwang, said the group timely shifted its focus to the mainland last year, tapping the world’s largest market for industrial aluminum extrusion products, as opportunities from sectors including transportation, machinery equipment as well as electric power engineering are expected to offer enormous business potential for the group in the world’s second largest economy.

The mainland is no longer a secondary market to Zhongwang, Lu said, adding that the group these days has sealed deals with a number of large mainland enterprises, mostly large state-owned enterprises, which have tremendous exposure to the nation’s infrastructure development and other key sectors.

Revenue from the mainland reached 4.18 billion yuan in the first-half of 2011, accounting for 98 percent of the 4.27 billion yuan total.

Meanwhile, the gross margin stood at 20.6 percent during the same period.

Linus Yip, a strategist from First Shanghai Securities said it is critical for Zhongwang to figure out ways to lift the gross margin as compared with the money-making exports to the US, saying that the current level of 20 percent is pretty tight.

“But shares of Zhongwang traded rather smoothly in the Hong Kong Stock Exchange this year, despite the volatility of the global and local equity markets, which suggests that the group is well recovered from the fall in its overseas business,” said Yip.

As of June 30 this year, the company had more than 700,000 metric tons of annual output capacity and its products occupied about a 13 percent share of the mainland’s industrial aluminum extrusion market, Zhongwang CFO Cheung told China Daily.

According to a market study carried out by Boston Consulting Group last year, the consumption of industrial aluminum extrusion products on the mainland is projected to rise to 3.80 metric million tons and 5.43 million metric tons in 2012 and 2015 respectively.

This compares with consumption of 2.63 million metric tons in 2009.

Besides focusing on the mainland market, the company has not stopped exploring overseas markets including Canada, Australia and Europe to build a diversified revenue base.

“And we are not giving up the US market since we are seeking opportunities to export high value-added products which have not been included in the category of anti-dumping and countervailing duties,” according to Lu.

litao@chinadailyhk.com
China Daily
(HK Edition 09/09/2011 page2)
http://www.chinadaily.com.cn/hkedition/2011-09/09/content_13654754.htm

RQFII quota allocated to mainland fund houses

The Hong Kong subsidiaries of mainland fund houses and securities firms will be allocated the initial quota of the yuan qualified foreign institutional investor (RQFII) program, the People’s Bank of China (PBoC) told China Daily in an email statement on Wednesday.

RQFII was unveiled by Vice-Premier Li Keqiang when he visited the city last month.

Candidates for the initial quota will be firms that have a sound knowledge of the mainland market, according to the central bank.

Eighty percent of the total designated 20 billion yuan-funded ($3.1 billion) foreign investment will go into mainland bond markets in the initial stage, the bank said, adding that all the preparatory work has essentially been completed and the pilot scheme is likely to be launched soon.

PBoC said it will also continue to expand the size of Hong Kong’s yuan bonds market by allowing more qualified domestic financial institutions as well as mainland enterprises to issue so-called “dim sum” bonds in the city.

Under the current plan, mainland entities will be allowed to raise a total of 50 billion yuan in the yuan-denominated bond market in Hong Kong this year.

The share will be split evenly between mainland financial and non-financial institutions with a quota of 25 billion yuan each, the PBoC said.

As bond-issuance is a stable fundraising channel compared with deposits and interbank borrowing, the central bank said it will continue to support Hong Kong-funded banks on the mainland to issue yuan bonds in the city, in a bid to promote diversification of fundraisings and improve the liability structure of such banks.

Since 2009, the central government has launched a series of measures to boost the role of the yuan in cross-border trade and investment, with the result that it has helped broaden the channels both for funding-raising and the use of the yuan in Hong Kong.

According to agreements between the PBoC and Hong Kong Monetary Authority, the mainland only supervises cross-border yuan funds while Hong Kong is independent in developing its own yuan business in accordance with its own regulatory requirements and market demands.

“The development of the offshore yuan business in Hong Kong is not the result of mainland administrative pushes, but the choice of the market,” the PBoC said in the statement.

litao@chinadailyhk.com
China Daily
(HK Edition 09/08/2011 page2)
http://www.chinadaily.com.cn/hkedition/2011-09/08/content_13645551.htm

Land sale below estimates again

Tseung Kwan O site sold for HK$3.12b vs forecast HK$3.7b

The Lands Department sold a site for large-scale home development in Tseung Kwan O district for HK$3.12 billion ($400 million) in an auction on Tuesday, missing surveyors’ estimates for the third consecutive time.

The property was estimated to sell for HK$3.7 billion, the median estimate in a survey of five surveyors and analysts by Bloomberg News. Their forecasts ranged from HK$3.3 billion to HK$4.4 billion.

The MTR-adjacent site at Tseung Kwan O Area 66A, which has a gross floor area of 73,662 square meters, was sold to Sun Hung Kai Properties Ltd on Tuesday at a price equivalent to HK$3,934 a square foot, according to calculations by Centaline Property Agency Ltd.

Centaline’s senior regional sales director Ken Lee Yuk-shing said Tuesday’s lower-than-expected winning price shows how cautious Hong Kong developers are about obtaining lands these days, which will have an adverse effect on second-hand home sales in the city.

“Investors will be more conservative in their offering prices under such circumstances and more homes are expected to be put up for lease rather than for sale,” said Lee.

However, Centaline Surveyors Managing Director Victor Lai Kin-fai said size restrictions on the Tseung Kwan O site may have discouraged interest as the winning developer will be required to build between 960 and 1,010 residential units on the plot to ensure an adequate supply of flats for the middle class.

The government also sold two smaller suburban residential parcels at Tuesday’s auction. A site in Yuen Long with a maximum gross floor area of 11,192 square meters was sold for HK$361 million. Meanwhile, a plot in Sai Kung town measuring 2,400 square meters went under the hammer for HK$121.5 million.

The public land auction on Tuesday was Hong Kong’s fifth so far this fiscal year with auctions and tenders having fallen short of market expectations as developers’ interest was dampened by market sentiment.

On August 9, the government auctioned off a Sha Tin Kau To land site for HK$5.5 billion at the opening bid, 33 percent lower than market estimates after global stock markets were roiled by the US debt downgrade.

And during the previous tender on August 25, the government sold a site in North Point at a premium of about HK$6.27 billion, which also fell short of the HK$6.47 billion to HK$9.07 billion estimated by the surveyors.

A Centaline report released September 2 showed that 5,439 private residential transactions were recorded in Hong Kong last month. Although it was slightly higher than July’s 5,254, the transaction volume in August was the second lowest since 2010 in comparison with an average of about 10,000 home transactions per month during the past two years.

Buggle Lau, chief analyst of Midland Realty, said the land auction on Tuesday achieved fair prices that reflect market conditions as well as developers’ confidence in the market.

Lau added that with the launch of several new real estate projects in the next two months, the property is expected to improve – as are first-hand residential sales.

litao@chinadailyhk.com
China Daily
(HK Edition 09/07/2011 page2)
http://www.chinadaily.com.cn/hkedition/2011-09/07/content_13635344.htm

City’s private sector in worst shape in two years

PMI falls below 50 for the frist time since June 2009

Operating conditions in Hong Kong’s private sector economy deteriorated for the first time in 26 months in August, as demand contracted markedly amid a worsening economic environment, the latest reading of the HSBC Purchasing Manager’s Index (PMI) released Monday indicated.

A reading above 50 indicates expansion, while that below 50 signals contraction. The headline index dropped to 47.8 in August compared with a rebound of 51.4 a month ago. It is also the first time that the index has fallen below 50 since June 2009.

New orders – a sub-index that tracks overall new business the city received – dropped to 48.1 in August from the previous 52.6 due to weaker external demand, the report shows.

Despite the new business from the mainland sub-index slipping to 52.6 from 54.2 in July, the moderate expansion nevertheless indicates steady demand from the mainland as around 23 percent of respondents reported higher orders from the city in August compared with the 19.2 percent who recorded a fall.

Although the mainland demand for Hong Kong goods and services is still holding firm, HSBC Hong Kong Chief Executive Mark McCombe said weakening demand in the West is adversely weighing on business conditions and hiring activities.

The lower levels of new business has “dragged back output activity”, which in turn fell to 46.3 in August from 51.4 a month earlier, Donna Kwok, Greater China economist from the bank, said in an email report.

The contraction in new orders and output also discouraged hiring in Hong Kong’s private sector. The employment sub-index slid below 50 to 47.3 in August from 51.7 in the previous month – the first time since December 2010, indicating that staff numbers in the city fell last month.

However, the report indicated that the weaker employment index was partly attributed to slowing demand and was also due to an increase in voluntary resignations.

Kwok said that given the improvement in July’s unemployment reading, which stood at 3.4 percent seasonally adjusted, it’s unlikely that the impact of weaker economic activity is affecting the job market yet.

“Moreover, the impact of lower business demand on hiring activity may take longer than usual to feed through this time, as the economy has been running at over-stretched capacity for quite a number of months; a situation that will take time to unwind,” said Kwok.

The August HSBC PMI suggests that mainland demand is still providing a critical lifeline to Hong Kong, but the city is not immune from the impact of slowing Western demand, Kwok wrote.

The HSBC PMI is based on five sub-indices, including output, new orders, employment, suppliers’ delivery times and stocks of goods purchased.

“With inflationary pressures still stubbornly high and private business sentiment starting to cool in Hong Kong, private consumption could potentially follow suit soon,” said McCombe.

The Hong Kong economy slowed in the second quarter as export growth decelerated, but despite the increasing level of uncertainty in the global environment, concern about an imminent recession in Hong Kong might be overblown as domestic demand remains strong, Joanne Yim, chief economist of Hang Seng Bank, wrote in a report published Monday.

Yim believes that slowing economic growth could also be a blessing in disguise as it would help ease escalating inflation pressure and easing demand, according to Yim. It would at least help alleviate domestically-generated price pressures, though imported inflation would keep consumer prices at relatively high levels.

litao@chinadailyhk.com
China Daily
(HK Edition 09/06/2011 page2)
http://www.chinadaily.com.cn/hkedition/2011-09/06/content_13625921.htm