Hong Kong's economy has been on a track of gradual recovery since the second half of last year, and all forecasts on this year's growth are more optimistic than before.

In spite of the inspiring development, we must not forget that the M-shape phenomenon in economic growth has occurred time and again in the past few years. It has not only dealt the local economy heavy blows, but also cast a long shadow in the minds of Hong Kong people. Can Hong Kong prevent the same thing from reoccurring this time?

The Asian financial crisis of 1997-1998 dragged Hong Kong's economy into the doldrums, sending local stock and property prices tumbling. It was after two years that a 10.5-per-cent rebound started to restore much of Hongkongers' confidence.

Yet the September 11 terrorist attacks in 2001 scared away investors and threw the local economy back into recession.

In 2002, the rejuvenation of imports and exports, driven by the rapid growth of the mainland economy, coupled with Hongkongers' persistence and hard work, brought back hope to the city's ailing economy. Unfortunately, the SARS epidemic stifled all trade and professions in the territory.

After the disease was finally brought under control, the Closer Economic Partnership Arrangement between Hong Kong and the mainland, together with the individual-travellers scheme, started to push Hong Kong's economy forward. Signs of recovery were finally visible and have lasted until now.

While it is inevitable to have ups and downs in economic development, the M-shape phenomenon in Hong Kong obviously cannot be blamed on the effect of a business cycle. In the wake of such economic volatility, the SAR government, the commercial and industrial sectors as well as the community at large have come to a two-edged consensus on how to avoid the M-shape development.

First, Hong Kong must readjust its economic structure as soon as possible. The local economy, small in size, catches a cold when the world economy sneezes. The territory must therefore minimize its dependence on external economic factors and develop more economic growth engines, including fostering high value-added industries with the help of CEPA so as to establish a comparatively stable economic regime immune to external challenges.

Second, the support of the motherland is Hong Kong's biggest advantage. For more than two decades, the surge of Hong Kong's economy was attributed to its active participation in the mainland's reform and opening up programmes. That the SAR was able to rebound twice in recent years was also thanks to the spill-over effect of the mainland's economic take-off as well as the strong backing of the central government.

The effectiveness of the "One Country, Two Systems" arrangement was brought into focus during the M-shape economic development. By giving full play to such advantage, the local economy should be able to steer safely through the storm at increasing speed.

In fact, this two-edged consensus is interrelated. The way out for Hong Kong's economic problems lies in the economic integration with the mainland, primarily the Pearl River Delta, so as to actualize economic restructuring. The vast and burgeoning hinterland on the mainland will be able to provide Hong Kong's economy ample space for development.

Chief Executive Tung Chee-hwa's plan to accelerate economic integration with the PRD is a grand blueprint. The strategic significance of it will be seen more clearly as time goes by. Although nobody dares to predict that the M-shape phenomenon will never recur, Hong Kong's economy will definitely have a much better future if only it could follow a clear direction with steadfastness.

(HK Edition 02/02/2004 page7)