ABSTRACT
This chapter seeks to find an explanation for the Hong Kong economy’s unprecedented plunge into deep recession in the wake of the Asian financial crisis. Hong Kong had gone through so many ups and downs through its history, and until 1998 not a single year since 1961 had recorded negative economic growth (see Table 14.1). The crises that Hong Kong had gone through include: the Great Proletariat Cultural Revolution in 1966 through 1968; 1 the two major oil crises of the 1970s; the plunge of the Hang Seng Index from over 1,700 in 1973 to less than 200 in 1975; the unprecedented interest rate hikes of 1981–1982, when the prime rate momentarily shot up to 20 percent; the Tiananmen incident of 1989, etc. Hong Kong had gone through true financial and banking crises, in the early 1960s and from 1982 through 1986, with multiple bank failures, and it was in the context of widespread panic and currency depreciation that the current linked exchange rate system was set up in 1983. But Hong Kong’s growth engine never failed, until 1998.
