desire is that we must do whatever it takes to bring the world back to the path of economic recovery, to enable more jobs to be created and to improve people ’ s welfare and livelihood. so, why do i ask this seemingly superfluous question? let me explain. 5. on a number of occasions in recent years i have expressed the view that although there were many factors leading to the global financial crisis and the european debt crisis, the root cause of our present predicament is the excessive leverage and indebtedness built up over the past two to three decades in the household, corporate and government sectors in the advanced economies. during this period, the indebtedness of many industrial economies, such as the us, the uk, france and germany increased steadily from 160 % or 1. 6 times of gdp to over 320 % of gdp. japan, of course, ranked the highest in this “ league table ” with over 450 % of gdp. this is alarming not just because the stock of debt was rising, but the speed of the increase outpaced the economic or income growth of these economies by 100 % over this period. what is even more depressing is that the aggregate public and bis central bankers ’ speeches private sector indebtedness ratios actually increased even further after the financial crisis in most advanced economies except for germany. 6. the increases were mostly due to a sharp pick up in public debt in most advanced economies after the global financial crisis, as substantial amounts of public funds were deployed by the crisis - hit countries to salvage their financial systems, while the real economies were suffering from falling fiscal revenues with slow growth and rising public spending. in the us, for example, public debt increased by us $ 6 trillion from the end of 2008, with the ratio of public debt to gdp rising from about 74 % to the current 100 %. another striking example was japan where the public - debt - togdp ratio surged from an already precarious level of around 190 % in 2008 to almost 240 % in 2012, and is expected to rise even further to over 250 % by 2020 along with still more fiscal stimulus under “ abenomics ”. in terms of private - sector debt, while the us and the uk underwent more significant private - sector deleveraging, most european countries showed little progress on the reduction in private - sector indebtedness. the weak peripheral countries aside, even in core countries like france, the private non - financial sector debt ratio increased

we are scarcely off track at all, from what appears to have been a secular trend of real appreciation of the currency. but others might argue that the structural changes of the eighties and nineties which were consistent with an appreciating real rate because of much more rapid productivity gains in the tradable than in the non - tradable sectors, cannot be repeated, so that the assumption of a continuing secular uptrend is invalid. on that view, the net appreciation over the past couple of years may be deemed to have dragged us away from our preferred path. it is hard to judge where the proper balance of these views lies. i recall how, 15 - 20 years ago, the doom merchants were prophesying the end of hong kong ’ s long run of growth because we were rapidly losing competitiveness in much of manufacturing. presumably they did not slides are not included in this text document. foresee the remarkable extent to which the service sector would develop as an alternative wealth - generating lynchpin of the economy. now, the next generation of doom merchants is prophesying imminent disaster as competitiveness in certain parts of the service sector appears to have been eroded. will they be wrong again? have they failed to appreciate the true workings of the market economy and comparative advantage? do they not realise how difficult it is to foretell exactly how an economy will evolve, even though the evolution is taking place right under our noses? indeed, as we sit here worrying about it, there are people out there who are busy exploiting niches and opportunities which will mould the future structure of the economy. we can try to facilitate that process, or even to guide particular aspects which we reasonably expect to be important ( eg the cyberport ), but there will always be surprises. in any analysis of competitiveness there is inevitably scope for argument about the appropriateness of the statistics one is using. i believe that in the current hong kong conjuncture the popular measures such as the real exchange rate may have been lagging somewhat behind the recovery of competitiveness that may have actually occurred. business decisions are influenced more by marginal prices and expectations of future prices, than by prevailing average prices ; yet the measure of rentals which enters the cpi is typically based on an average of outstanding contracts and not the price at which new contracts are being struck which have over the past year or so fallen much more steeply. thus, when thinking of business decisions, even assuming that residential rentals are a