The Asian Financial Crisis and After

The Asian Financial Crisis and After: Problems and Challenges for the Hong Kong Economy Before the outbreak of the Asian financial crisis, Hong Kong had one of the highest cost structures in the world. Hong Kong's economic restructuring after 1979 led to a rapid increase in demand for non-tradeables, namely land and labour. However, the supply of land was restricted by the Sino-British agreement in 1984, and the labour force grew sluggishly because of the declining rate of natural population increase, the changing age structure, the declining labour force participation rate and emigration. This led to a decade of high wage price inflation. The Asian financial crisis has caused severe cost deflation in Hong Kong. After the crisis, Hong Kong faces the challenges of finding more high value-added economic activities to sustain its economic growth and high wages. Hong Kong can become a first-rate international financial centre, like New York and London, and a regional centre for innovation and technology. To achieve this goal, Hong Kong cannot just rely on local talent but must draw on the global pool of talent. Hong Kong will undergo its third economic restructuring since World War II, which will transform it into a first-rate international financial centre and a regional centre for innovation and technology. This restructuring will be driven by a large scale inflow of highly skilled human capital, principally of mainland origin. The Hong Kong SAR Government must change its immigration policy to allow this inflow.