Hong Kong Business Recovers From Tiananmen Square

THE economic dislocations that reverberated across Hong Kong from the Tiananmen Square turmoil in China last year are abating. ``Confidence has returned'' in the past few months, albeit slowly, says Hamish McLeod, treasury secretary for the territory. Domestic and foreign investment, particularly in infrastructure projects, ``are proof on a grand scale of long-term commitments by all parties,'' says Anson Chan, secretary of Hong Kong's economic services ministry.

Indeed, trends in several key sectors show that the economy is returning to pre-1989 patterns of growth.

One indication comes in orders for Christmas season toys. Orders are ahead of volumes posted last year. This is important for the trade-oriented city-state, since $3.5 billion in exports are derived from GI Joe, Cabbage Patch dolls, the Barbie Doll series, and other toys.

Toys are considered a microcosm of the manufacturing base. Lackluster performance troubled the toy industry most of last year. The industry was hurt by competition from neighboring, low-wage Macao. Now, ``sales volume is much greater than expected,'' says Dennis Ting, president of Kader Toys. A Nintendo executive agrees: ``We are not worried anymore.''

In textiles, a move to upscale product lines is improving prospects.

Similarly, consumer electronics is recovering from a 1989 downturn. Observers forecast an increase of as much as 25 percent in sales, benefiting a vast supply and subcontractor network. ``Unless a severe worldwide recession affects orders, sales for half the companies should beat records,'' says Fred Kriehbel, president of Molex Nanco, an electronics connector maker.

Other sectors are faring well. Efforts to build a convention center business are promising. Inflation has shrunk from a menacing 9 percent rate, but is still troubling. Growth in gross national product should surpass 3 percent this year - an improvement over 2 percent in 1989. Trade increased in the first half of this year, after reaching (US)$150 billion in 1989. In a major economic shift since the mid-1980s, services have grown to make up 77 percent of the total output of goods and services.

Massive new infrastructure projects are under way. These include a second airport and a $17 billion port expansion. Belgian, American, and Asian interests have completed investment plans for a $700 million cable television network - the world's largest.

After long consideration, the traditionally noninterventionist government is channeling funds into manufacturing research. The goal is to infuse forms of automation into companies whose management - like some Western counterparts - show a zeal for short-term profits but scant commitment to long-term strategy.

In addition, the territory hopes foreign firms will graft advanced manufacturing methods onto the existing economic base. A fledgling university-business-government program will emphasize customized and application-specific computer chips. C. Tan, vice-president of operations for Motorola, sees ``a big change'' in Hong Kong's reputation as a low-wage producer. Labor is to be replaced by local ``brain power,'' he says.

Japan is contributing to the current upturn. A large share of the incoming technology originates with Tokyo and Osaka-based multinationals. Enormous increases in Japanese investment surfaced since last summer. One source estimates the inflow reached $1 billion last year. The pre-1989 Western strategy of a Hong Kong base for China markets was never abandoned by Matsushita, Sony, Tochiba, Nippon Electric, and Mitsui.

The ``brain drain'' of professionals and mid-level managers, before and since Tiananmen, remains troublesome. Actions to slow this diaspora - with 1,000 people departing weekly - are not producing results. Yet, ``recruitment of foreign instructors is a plus'' that partially neutralizes the impact felt by business, says Glenn Shive, local director of the Institute of International Education.