Stephen Cheung is cautiously optimistic that Hong Kong will recover from the financial crisis by the end of 2010.

There have been lots of discussions about when the Hong Kong economy will recover from the shocks of the financial tsunami, with some predicting a revival at the beginning or middle of 2010 at the earliest.

Professor Stephen Cheung, Dean of Baptist University's School of Business, is less optimistic about an early recovery as he believes the sluggish US economy will let Hong Kong down. Also, unemployment in Hong Kong is likely to go up again as thousands of fresh graduates enter the job market.

Speaking to China Daily in an exclusive interview, Cheung said the Hong Kong economy has been stabilizing a bit of late. The stock market and property market are quite active while consumer confidence and domestic consumption are really not bad.

However, he said 'stabilizing' is not the same as 'recovering' as the stock and property market booms do not truly reflect growth in the real economy.

In his opinion, the first wave of the financial tsunami dealt a heavy blow on the financial sector and the middle class. And as the financial crisis has also affected the retail and catering sectors, the second wave is beginning to harm the grassroots as they face the threat of job cuts and wage reductions.

While some people such as Professor Lawrence Lau, Vice-Chancellor of Chinese University of Hong Kong's and also an internationally-acclaimed economist, are still bullish that economy will recover in the middle of next year, Cheung is not so optimistic.

"I won't call it economic recovery unless the Hong Kong GDP growth returns to the normal 4 percent or 5 percent growth," he said. "Some people think the economy is stabilizing because the financial and property markets are quite active, with prices of some properties returning to the pre-crisis level.

"Yet there may be a push-up effect behind the buoyant investment and property market activities. Since people get zero interest from putting money in the banks, they would prefer using their money to invest and buy properties, thus prompting the busy market activities. At the same time, banks have become more willing to lend money after the panic has eased and they find the mortgage loan business both secure and profitable," he noted.

However, he worried that because of the excessive money in circulation, the threat of inflation may haunt Hong Kong again at the end of this year or the beginning of next year.

"It will be a dilemma when inflation comes again at a time when our economy has yet to recover from the ruins. The reason is because the real economy is unable to catch up with the investment markets. I am not sure if the economy will bounce back in early or the middle of next year, but I am cautiously optimistic about an economic revival at the end of 2010," he said.

"Economy is only stabilizing but it has not recovered. It is not known if it will go down again, and it will at best bounce back in form of a W-shape recovery," he analyzed.

Aside from predicting that unemployment will rise, the professor is most worried about Hong Kong's deteriorating export trade, which shrank by 22.7 percent in the first quarter of this year.

Although the contraction of total export narrowed in the second quarter, the US and Europe will continue to make little use of Hong Kong's position as a re-exporter until they resume buying, especially from China, upon recovery of their economies.

Cheung reckoned that Hong Kong's recovery hinges greatly on the revival of the US economy. Commenting on the US government's multi billion-dollar measures to revive the economy, he said the measures were so far so good as long no further banking institutions collapsed.

"Their financial market activities have resumed and the banks now continue to lend money," he said.

Middle class are victims

The economic downturn has affected the financial industry drastically, triggering many investment banks and financial institutions to lay off staff, said the professor, who had friends and former students made jobless in the financial crisis.

According to Cheung, those who have worked in investment banks for more than five years will probably have plenty of savings and be in a better financial position to weather the storm.

But for junior investment bank executives with little experience, they will encounter major financial difficulties should they lose their jobs.

"But it is not the end of the world yet as they can find jobs again after economy turns around within a year or two," said Cheung, giving hope to the many people that were unfortunate to be made redundant. "Of course, they need to overcome their psychological barrier and adjust their lifestyle.

"What the government can do is to kick-start the economy so that they can find jobs again easily, offer them emotional counseling service and food bank service. You can't expect the government to provide them subsidies to pay for housing mortgages and their children's overseas education expenses with the taxpayers' money."

Cheung also believed that some middle-class people, although temporarily out of work, could still serve the community with their expertise and not idle themselves.

"With their professional knowledge, they can teach the NGOs and social enterprises to do business during their gap year. Alternatively, they may be hired as lecturers to teach at universities," he suggested.

From his experience as a member of the then Commission on Poverty, Cheung realized there remains a very large group of middle-aged people with little education and skills who cannot transit to the knowledge-based economy, since the number of low-end jobs in Hong Kong are falling following the relocation of manufacturing businesses to the mainland.

"Even retraining can't help them much," he said. "Therefore it is most important to help the younger generation to prevent the problem of generational poverty."

Employers' responsibility

On the issue of social corporate responsibility, Cheung reckons that enterprises are accountable to their stakeholders, who are not limited to shareholders but also include government, citizens and society.

"The outbreak of the financial tsunami has reflected the importance of social corporate responsibility," he remarked.

"In my view, enterprises need to care more about their employees by way of manpower training, reasonable working hours, good incentives and good retirement systems. They should not just look at short-term profits and should not cut staff simply because they earn less than last year," he commented.

He stressed that there must be other ways for enterprises to handle the situation than firing staff. "Enterprises, for example, can streamline their work flows or ask the staff to take no pay leave," he said.

However, he stressed it is not true that corporate social responsibility means that enterprises cannot cut staff, saying that those who under-perform may be fired and departments that do not do well may be reorganized.

(HK Edition 07/24/2009 page4)