Hongkong GDP figures continue to stagger the imagination. Why are the likes of the IMF so keen to accept as gospel numbers which so inaccurately reflect reality? And why are HK's budget numbers so uncertain so late in the year? SCMP

 

You do not need to be a mathematician to be Financial Secretary. But a basic grasp of arithmetic helps. Of course we all have problems with statistics from time to time but it is important to beware of the temptation to jump at numbers we like even when they do not add up. Donald Tsang must surely have had some doubts in the back of his mind last week when he simultaneously crowed about Hongkong's supposed 10.4% third quarter growth rate while warning of a rising budget deficit and problems ranging from the US election to oil prices and local investors' losses from technology shares (dot com scams perpetrated by leading local businessmen, perhaps?).

I have noted in this column before the unreality of government GDP data. This is not to say that it is being manipulated. Merely that the method produces results which are a nonsense. It is curious how not only the ever gullible International Monetary Fund takes the data at face value but some of the world's highest paid economists - the brokerage and investment bank salesmen/analysts - do not bother to analyse it. For the record, using the official data, Hongkong's GDP in term of actual current Hongkong dollars in the third quarter was HK$327 billion. The figure for the same period on 1999 was HK$317 billion. The increase was thus 3.15%. So how do we get to 10.4%?

By using a deflator of minus 6.6% -- in other words, and in lay terms, prices for the economy as a whole have fallen by that amount. Of course we know this is not true because most of the government data, as well as our own observations and bank accounts, tells us that this is not so. For example, the composite consumer price index - and consumption represents two thirds of expenditure -- fell by just 2.8%.

Even that is an exaggeration for the vast majority who are not in the private rental sector which is the major component of the housing cost index which has a 29% weighting in the overall index. Exclude this private residential rent sector, which fell 8.2%, and prices were roughly static, with declines in food, clothing and durable goods being offset by rises in energy, transport and services costs.

The only other significantly negative price factor was a decline of 4.5% in the capital expenditure price index, largely a result of a fall in construction tender prices. Otherwise the economy has been looking at static prices, with wages stagnant and prices of locally consumed imported goods up by 4%. The merchandise export sector has been very strong with overall merchandise trade up by 18% with prices overall almost flat. Though the visible trade surplus has declined due to some recovery in domestic demand, net service sector net exports have increased.

However terms of trade have fallen as export prices have been static while import ones have increased. The buoyant external sector cannot carry the whole economy to double digit growth in the face of weak domestic demand and a sharp fall in private sector construction. Total employment has risen by only 3.4% over the year and electricity consumption by 4%. Private consumption overall is up 5.6% and though capital spending jumped 13% in the quarter this may be a flash in the pan given the peaking of public sector spending and the still low level of private construction.

What we are looking at here, Sir Donald, is a respectable level of recovery but roughly half the one you are claiming. In fact, judging by his recent remarks to HK reporters in Singapore, Zhu Rongji may have a better idea of what's really going on here than you do. Most people in Hongkong have yet to feel much benefit from the recovery,. noted Zhu. He apparently appreciates that zero pay rises when prices are only falling in the minds of government statisticians is no reason for contentment -- other than by molly-coddled civil servants with guaranteed jobs, free dentistry, subsidised housing and inflation-proof (but un-deflatable) pensions.

With nearly 750,000 people in full time jobs earning under $7,000 a month - and some 375,000 under $5,000 - it is no wonder that even the normally supportiveDemocratic Alliance (DAB) is getting impatient with the self-satisfied myopia of the Hongkong bureaucratic elite, at least judging from recent spirited remarks by Chan Yuen-han. The Financial Secretary seems to be gearing up for a tight rein on spending. He has just warned of a HK$5 bn shortfall this year because of lower than expected receipts from sale of MTRC shares - though this had earlier been claimed to be a great success.

It is hard to know what the make of these remarks. A year ago Tsang was warning of the need to broaden the tax base - which he himself had drastically narrowed - which led to a widespread assumption of more indirect taxes. But in the event nothing happened on the tax front and Tsang ended up with a surplus not a $36 bn deficit originally forecast. Is he now suggesting that the deficit will be higher just because of the MTRC? Are his other estimates roughly right? Or will there be spending shortfalls? Who knows? Either he should give a proper account, or keep his mouth shut till the budget.

What is amateurish is not that the original Budget estimates, drafted 15 months before the end of the year in question, are often far out. That is understandable. The problem is that those estimates made or implied just a few weeks before the end of the financial year are also so wide of the mark. His estimate for last year given just three weeks before the end of the financial year proved wrong by HK$10 bn. Was this incompetence or deliberate misleading of the public? There is scant sense of public accountability. No wonder we have Cyberport, Disney and now proposed soft sales of 3-G phone and digital TV licences by a government which claims to be hard up for revenue.

But I suppose we all, journalists included, get confused by lists and statistics. On Wednesday this paper carried a report and table about comparative maths and science scores for 8th grade students in 38 countries. The report listed Singapore top in both categories, with Hongkong fourth in maths and 13th in science. Chinese Taipei (aka Taiwan) was not mentioned. In the copy of the same report I downloaded from the internet, the Taiwanese were first in science and third in maths, and Hongkong lower by one place in maths and two in science. Such are the mysteries of statistics. or something. ends The world is awash with issues of the constitution, that word which sounds grave and imposing but in reality is simply the place where law and politics meet.

 ends
 

TOP OF THE PAGE