Amid the public euphoria, fuelled by the belief that the economy - especially the property sector - is recovering, James Hughes-Hallett, chairman of Swire Pacific, one of Hong Kong's largest business conglomerates, has remained decidedly cool.

"The change in sentiment in the past two months has been most encouraging," Hughes-Hallett admits. "It suggests that perhaps the economy has hit bottom," he adds.

But Hughes-Hallett remains sceptical about reports that the office sector is leading the revival of the moribund property market.

He says that supply of new office space in various business districts is still high. "There is quite a lot of capacity to be delivered," he says.

His company, which built and owns some of Hong Kong's most well-known office and retail landmarks, has begun the construction of an office building as an extension of Pacific Place, an office/retail complex that also houses three five-star hotels.

It also has plans to redevelop some of the older office buildings in Tai Koo Place in the eastern part of Hong Kong island.

Although Hughes-Hallett says that he has not seen rents going up in the office market at all, the demand for grade-A office space is expected to be maintained at a reasonable level by the continuous inflow of foreign companies establishing offices in Hong Kong as a springboard into the mainland market.

"What is significant is that overseas companies are coming to Hong Kong for jumping into the mainland," he says.

The influx of foreign companies into Hong Kong is expected to gather pace as the recently-concluded Closer Economic Partnership Arrangement (CEPA) begins to take effect in opening up more business opportunities on the mainland, especially the Pearl River Delta region, for Hong Kong companies.

"The greatest value of CEPA may well be symbolic," says Hughes-Hallett but "it is a psychological boost for Hong Kong". Although Hong Kong has yet to reap the real benefits from CEPA, it has created much interest among overseas companies, he says.

Encouraged by a pick-up in sales, the residential sector seems a bit more upbeat. There are signs of revival in the secondary as well as the primary market for residential properties, Hughes-Hallett says.

As one of the major developers, Swire has changed its focus since the property collapse in 1997, according to Hughes-Hallett.

In the past, the company was quite heavily involved in the mass residential area. Now, "we don't have a lot of projects in the pipeline," he says.

The company is now concentrating on being a "niche operator" specializing in the development of high-quality residential projects in "attractive locations," Hughes-Hallett says.

From a macro perspective, Hughes-Hallett says that the economic adjustment process that has wiped off an average of more than 60 per cent of Hong Kong's property value is coming to the end.

"We are really through that cycle now," he says, noting that as far as office rental is concerned, Hong Kong has become very competitive compared with Beijing and Shanghai.

What's more, Hong Kong enjoys the added advantages of having a simple and low-tax regime, a common-law based legal system and is free of any form of foreign-exchange control, he adds.

Commenting on Swire's airline business, Hughes-Hallett says that Cathay Pacific is recovering rapidly from the devastation of the SARS epidemic that wrought so much havoc in Hong Kong between March and June.

The airline business was particularly hard hit by the epidemic because many people had avoided traveling.

But since September, business has recovered strongly, especially for long-haul flights. "We are seeing a better load factor and yields are improving," Hughes-Hallett says.

One reason for the quick recovery stems from the pent-up demand for business travel. Many business trips were cancelled during the SARS epidemic.

Now, the business people of Asia are trying to catch up with the backlog of meetings.

For Cathay, the big thing this year is the resumption of scheduled flights to Beijing after many years of suspension. "This is an emotional event for us," Hughes-Hallett says. The "next target" will be flying to Shanghai, he says.

Cathay will start off with three flights a week to Beijing. "Our main task on hand is to re-establish ourselves on those highly-competitive routes," Hughes-Hallett says.

Operating an international flight network, Cathay enjoys a distinct advantage over its competitors, including Hong Kong's Dragonair and various mainland airlines.

Using Hong Kong as a hub, Cathay can offer mainland travellers the convenience of flying to many overseas destinations in Asia, North America and Europe on one airline.

Operating scheduled flights to the mainland is of "vital importance" to Cathay Pacific in the long term, Hughes-Hallett says.

Cathay's cargo business has been very strong, thanks to the increase in re-exports to and from the mainland. And Swire's aircraft engineering unit, HAECO, has also performed well. The company has established heavy maintenance and modification facilities in Xiamen.

Since the Asian financial crisis and the SARS epidemic, "we have become much more fascinated and excited about taking our mature businesses from Hong Kong to the mainland," Hughes-Hallett says.

The expansion of the company's beverages business on the mainland serves to illustrate the success of this strategy, he says.

Swire has the exclusive Coca-Cola franchise for a number of markets, including Hong Kong and the mainland.

It has established 10 bottling plants in seven provinces on the mainland serving an estimated 400 million "consumer population".

Hughes-Hallett says that the business has been growing in double digits each year. "We're very excited by the way the business is growing," he says.

Part of the growth has been driven by the introduction of non-carbonated drinks, including juices and tea.

Hughes-Hallett says that growth on the mainland is very exciting and says he expects it "will continue to be so" in the foreseeable future.

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