Chart 1 Gross Domestic Product (%) 8 6 4 2 0 -2 -4  Year-on-year change  -6  Quarter-on-quarter change, seasonally adjusted  -8 Q1/ 96  Q2  Q3  Q4  Q1/ 97  Q2  Q3  Q4  Q1/ 98  Q2  Q3  Q4  Q1/ 99  Q2  1  •  GDP – a rebound in the second quarter (in excess of 3%, quarter on quarter) after six consecutive quarterly declines (Chart 1)  Chart 2 External Trade $ 20 15 10  (% yoy) 28  Overall trade balance Imports of goods Exports of goods  21 14  5  7  0  0  -5  -7  -10  -14  -15  -21  -20  -28  -25  -35 1996  1997  1998  1999 2  •  External trade – exports picked up in recent months, with the overall trade balance remaining in a healthy position (Chart 2)  BIS Review 103/1999  2  Chart 3 Retail Sales (Seasonally Adjusted)  (% qoq) 8 4 0 -4 -8 -12 Q1/ 97  Q2  Q3  Q4  Q1/ 98  Q2  Q3  Q4  Q1/ 99  Q2 3  •  Retail Sales – clear rebound in the second quarter (7% increase, quarter on quarter) (Chart 3)  Chart 4 Tourist Arrivals  (’000) 1,200  1,000  800  600 96  97  98  99 4  •  Tourism – uptrend re-established (up by 11% in the first seven months of 1999) (Chart 4)  3  BIS Review 103/1999  Chart 5 Labour Market (%, 3mma) 7 Unemployment rate (LHS) 6 Employment growth (RHS) 5  (%, yoy) 7 6 5  4  4  3  3  2  2  1  1  0  0  -1  -1 96  97  98  99 5  •  Unemployment – off the peak, now at about 6% (Chart 5)  (Index) 125  Chart 6 Composite CPI (Seasonally Adjusted, 10/94 - 9/95 = 100)  120 115 110 Overall Core Core excluding rent  105 100 96  97  98  99 6  •  Prices – downward adjustment in CPI continuing, but the fall in core prices excluding rentals has levelled off in recent months (Chart 6)  BIS Review 103/1999  4  Chart 7 Hang Seng Index  (31/7/64=100) 17,000 15,000 13,000 11,000 9,000 7,000 96  97  98  99 7  •  Stock market – recovered almost all of its lost ground (Chart 7)  (1995=100) 180  Chart 8 Residential Property Price Index  160 140 120 100 80 96  97  98  99 8  •  Property prices – off the bottom (September 1998) and stable (Chart 8)  5  BIS Review 103/1999  Chart 9 Interest Rates  (%) 50  1-month HIBOR 40 Differential between 1-month HIBOR and LIBOR  30 20 10 0 -10 97  98  99 9  •  Interest rates – stability returned, and premium over the US Dollar interest rates has fallen to pre-crisis level (Chart 9)  (Ratio) 7  Chart 10 Loans Delinquency Ratio of Local Banks  6 5 4 3 2 1 4Q97  1Q98  2Q98  3Q98  4Q98  1Q99  2Q99 10  •  Non-performing loans – low (around 6%), still increasing but signs of levelling off in the second quarter (Chart 10)  BIS Review 103/1999  6  Chart 11 Mortgage Loans Delinquency Ratio  (Ratio) 1.4 1.2 1.0 0.8 0.6 0.4 0.2 Jun-98  Aug-98  Oct-98  Dec-98  Feb-99  Apr-99  Jun-99 11  •  Overdue mortgage payments – default ratio definitely levelling off since April (Chart 11).

Mr Yam comments on Hong Kong: from crisis to recovery  Speech by the Chief Executive of the Hong Kong Monetary Authority, Mr Joseph Yam, at the HKMA Luncheon on the occasion of the opening of the HKMA Representative Office in London on 28 September 1999. * * * It is a great pleasure to be speaking here in London again, and to do so at this large and expert gathering. Some of you may have been present at my last speaking engagement here, in June last year at the 11th Dragon Boat Dinner, which now seems like a very, very long time ago. In that speech I described Hong Kong, against the background of the financial turmoil in Asia, variedly as a pillar of stability, the eye of the storm and the typhoon shelter of Asia. My message then was that Hong Kong, with prudent policies and robust financial structures, had been the last and the least to be affected by the storm. Since that time, as you all know well, the tail of the storm has swept through Hong Kong and it has not been so gentle after all. The painful downward adjustment in the internal cost/price structure under a fixed exchange rate system eventually and inevitably came. This was reflected in plummeting asset prices, declining GDP and rising unemployment. Although the fundamentals of the Hong Kong economy remained sound, these events provided an attractive environment for the launch of speculative attacks.