HONG KONG: The city's economy is expected to emerge from the gloom and recover from the financial turmoil in 2010, but that's for later. In the meantime bankruptcies continue to rise. The number of companies forced to wind up affairs is not expected to reach the scale of 2003, according to the latest survey by Deloitte China and CPA Australia Hong Kong China Division.

However, Derek Lai, Asia leader of reorganization services for Deloitte China, warned companies not to be too affirmative and to stay alert to threats arising from the current crisis. Bankruptcies and compulsory wind ups reflect underlying uncertainty in the marketplace, he said.

He forecasts that the export-driven manufacturing sector, banking and finance, air and transportation services will remain shaky in the near term.

The findings, based on 164 interviews with Hong Kong- and mainland-based companies, revealed that over half of respondents expect the local economy to turn around in 2010 while 48 percent foresee a full recovery for Hong Kong's economy to pre-financial crisis levels within two-years. Last week, the government reported 1,619 bankruptcy petitions in June. That represents a year-on-year increase of nearly 90 percent. The total for the first half of 2009 was in excess of 9,000.

The survey, conducted in May and June this year, showed companies remain affirmative in their outlook. Over 85 percent of respondents believe the annual number of bankruptcy orders will not break 25,000, the peak during the SARS outbreak.

Over three-quarters of respondents believe compulsory wind-ups will not exceed the worst-ever year, 2003, when there were 1,200. The survey also pointed out respondents faced difficulties like declining market demand/sales orders, tightening of credit terms from lenders and insufficient cash flow during the economic crunch.

(HK Edition 07/24/2009 page3)