Mounting uncertainties over how capitalist Hong Kong would fare under communist Chinese rule some 14 years hence have flung this financial center into its deepest crisis in over a decade.
Ten days ago, the British colony was the scene of what some analysts believe could be a portend of things to come.
On Saturday, Sept. 24, the local dollar plunged to an all-time low at 9.55 against the US dollar, or a drop roughly 21 percent from a month ago. The stock market plunged in sympathy. Residents rushed into panic-buying of consumer goods for fear of violence on the streets. Long lines formed inside banks as residents tried to convert local dollars into US currency.
As if its problems were not enough, the Hong Kong government early last week, took over a local medium-sized bank, Hang Lung, to stave off its collapse due to liquidity problems. It was the first time the government had taken over ownership of a financial institution in Hong Kong's freewheeling capitalist system. But without the takeover, the bank would have been the first to collapse since 1965, and the repercussions in the colony would have been disastrous.
Since British Prime Minister Margaret Thatcher's talks with Chinese officials in Peking last summer, a deepening cynicism has engulfed Hong Kong's economic climate. China has repeated its intent to resume sovereignty over the entire territory when the lease runs out on June 31, 1997. While China's view is to uphold Hong Kong's social and economic systems, the lack of any definitive statement from either side on how this will be carried out without drastically altering the lives of the 5.5 million people has spawned widespread anxieties.
Immigration inquiries have piled up at consular offices here. Both the Australian and Canadian consulates noted a marked rise in applications for their investor-related visa programs in the last year.
While no hard data is available, Hong Kong investors have been moving huge amounts of US dollars to safe havens - the US, Canada, Singapore, and other Southeast Asian countries, according to banking sources. Singapore, Asia's billion-dollar foreign exchange center, reportedly is wooing Hong Kong money despite the removal early last year of an interest-withholding tax on Hong Kong's foreign currency deposits.
But despite the political gloom, it's business as usual for most firms here. Except for severe fluctuations of the exchange rate, the jitters have had no significant impact on trading and service activities in which multinationals abound.
Bankers and financial managers outwardly are optimistic that Hong Kong's role as a financial center will
not be affected as long as the essential facilities remain.
But privately, some of them are genuinely worried that, in the absence of clear indications of where the 1997 talks are leading to, the situation could deteriorate rapidly in the next 18 months. For now, the local dollar has stabilized at around 8 to 1 against the US dollar after the government took steps, including a 3 percentage point rise in prime lending rates to support the currency. But financial markets remain volatile.
The nervousness about politics is also undermining recovery for Hong Kong's export-oriented economy. Hong Kong Financial Secretary John Bremridge recently announced that the territory's gross domestic product growth rate - now forecast at 6 percent for 1983, up from last year's 2.4 percent - would be growing at a double digit rate if not for a lack of investment confidence. The weakness of the local dollar is fueling inflation. The depressed property market has shown ''virtually no signs of revival,'' he said.
However, on the whole, foreign and local manufacturing concerns have tended to look for plant expansion elsewhere, like Taiwan or Singapore, due to uncertainties and the lack of economic incentives in Hong Kong.
The latest round of Sino-British talks held Sept. 22-23 ended without any sign of progress. But as if to aggravate fears, Chinese officials have been issuing increasingly strident noises against British ''colonialist'' tendencies, hinting at scrapping a British role in administering Hong Kong after 1997. Many residents view this role as crucial to continued economic prosperity.
Some bankers confide that big businessmen are not really concerned since many of them hold foreign passports and could easily leave when the going gets tough.
But, they say, it's the lower and middle classes, professionals, and small businessmen who have the most to lose in economic freedoms. One local Chinese banker warns that, in a worst case scenario, Hong Kong might see ''massive unrest.''
While many discount such extreme posibilities, they agree that the political question needs to be resolved quickly - within the next two years at the very latest to maintain stability and growth in the colony.