Unrest adds risk factor to stale HK

WITH both men facing the biggest tests of their six-year-old administrations, Tony Blair should have lots in common to talk about with host Hong Kong leader Tung Cheehwa when they meet on Thursday.

Chief executive Tung, handpicked by China to run the territory after Britain quit in 1997, has this month seen unprecedented demonstrations derail controversial security legislation and had two top ministers - including Financial Secretary Antony Leung - resign.

The wave of protests has been so intense, some have suggested that Tung himself may not last. But the former shipping magnate has insisted he will not step down and has received full support from his political masters in Beijing.

However, Tung knows there are growing concerns the political crisis may exacerbate the territory's deep-seated economic problems and add a further worry for businesses based there.

Although economists and observers say Hong Kong will remain an important gateway to the booming Chinese economy - which should expand more than 7% this year, the fastest rate in Asia - risks for investors and businesses are rising.

'Political uncertainties will persist until Tung forms a new administration,' says Smith Barney economist Joe Lo, who adds that Tung may struggle to find suitable candidates for his unpopular administration. 'This will raise the market perception of Hong Kong's political risk.'

Although it was the attempted passage of national security legislation - Article 23 - that triggered the unrest, protests have been swollen by a host of issues. Christine Loh, a former legislator and head of think-tank Civic Exchange, said citizens were alienated by Tung's inept and aloof style of leadership, and by the dismal recent economic record.

Even before the killer Sars virus hit the economy, Tung and Leung were scrambling to plug a gaping budget deficit, trim record unemployment of 8% and reverse more than four years of deflation, including a 50%-plus slump in local property prices. The stagnation has been all the more painful as the rest of China's economy has expanded rapidly.

But David Dodwell, executive director of lobby group Vision 2047 Foundation, says that the government's role in the wider Hong Kong economy remains relatively small.

Airport chief is top tip
VICTOR Fung, chairman of Hong Kong's airport authority, is the frontrunner for the position of Financial Secretary.

The post has been vacant since Antony Leung resigned last week. Joseph Yam, head of the Hong Kong Monetary Authority, and his predecessor Donald Tsang are also in the running, as are Commerce, Industry and Technology Secretary Henry Tang, Hang Seng Bank chief executive Vincent Cheng and Standard Chartered director Peter Wong.