Hong Kong's Profits Down, Hope For New Tourists Up

UNCLAS HONG KONG 000318

SIPDIS

STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: Hong Kong's Profits Down, Hope For New Tourists Up


1. Summary: Some of Hong Kong's richest men announced their company
profits were hit hard by the economic downturn, with Bank of East
Asia's 2008 profits falling by 97.5 percent from 2007. Air and sea
cargos fell by double digits again in January, while the
unemployment rate edged up to 5 percent. Provincial leaders
announced that all Guangdong residents would be able to travel to
Hong Kong as individual travelers, Hong Kong's Tourism Board
estimates that could boost the number of mainland tourists up by 5
percent this year. The Hang Seng Index fell 6.3 percent this week
as investors were unenthusiastic about U.S. prospects.

The Rich only get a Little Richer


2. Hong Kong-listed companies have begun to report 2008 year-end
results reflecting the impact of the global financial turmoil on the
Hong Kong economy. On February 10, Hang Lung Group, a property
holding company owned by Ronnie Chan, reported a 78 percent drop in
net profits from a year ago, while profits at its subsidiary, Hang
Lung Properties, fell 83 percent. Ronnie Chan told the press that
he expects the Hong Kong property market to continue to fall over
the next year. Despite claiming last year to have written off all
of its exposure to "toxic" subprime assets, Bank of East Asia this
week announced its profit after tax for 2008 dropped 97.5 percent to
just HKD 39 million (US$5 million),its first fall in four decades.
Owner David Li apologized to shareholders and promised to postpone
his imminent retirement to improve the bank's book over the next
three years.

Cargo Traffic Still On the Skids


3. Both Hong Kong's air and shipping cargo businesses fell further
in January. Statistics published by the Hong Kong Airport Authority
on February 15 indicated that January air cargo volume fell 28.9
percent from a year ago. Hong Kong Airport Authority CEO Stanley
Hui said "the declines we are experiencing in the aviation industry
are largely consistent with what is happening with the global
economy". Cathay Pacific and Dragonair, the two Hong Kong airlines,
saw cargo volumes down 26 percent in January. Passenger traffic
rose 0.2 percent in January due to the Lunar New Year holiday.


4. Hong Kong's container throughput totaled at 1.6 million TEUs in
January, down 23.2 percent from a year ago. Traffic at Kwai Tsing
Container Terminal was down 18.7 percent, while container terminals
outside Kwai Tsing dropped 34.1 percent. The three day Lunar New
Year holiday stopped or slowed work at some terminals, but cannot
account for the large drops in volume.

Unemployment Up, Employers Urged to Keep Workers


5. The Hong Kong government announced this week that the
unemployment rate for the three months ending in January rose to 4.6
percent from 4.1 percent in the last quarter in 2008. Market
sources said Hong Kong's unemployment rate in January was close to 5
percent. Chief Secretary Henry Tang called upon two of Hong Kong's
largest employers, HSBC and PCCW, not to lay off employees.

Beijing to the Rescue (Again)


6. During the Hong Kong-Macau-Guangdong joint conference held
February 19, Guangdong officials disclosed that all Guangdong
residents will be allowed to visit Hong Kong as individual travelers
in order to boost Hong Kong's tourism industry. The Hong Kong
Tourism Authority expects that the new measures could push up the
number of Mainland tourists to Hong Kong by 4 to 5 percent this
year.


7. The Hang Seng Index finished the week down 6.3 percent or 855.5
points, closing Friday at 12699.17. Treading during the week was
light, averaging less than HKD 39 billion per day. HIBOR remained
low, with overnight and one week funds at 0.05 percent, one month at
0.18 percent and three month at 0.78 percent.