VZCZCXRO9387
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHVC
DE RUEHHK #1688/01 2541046
ZNR UUUUU ZZH
R 101046Z SEP 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 5755
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 HONG KONG 001688 
 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV HK CH
SUBJECT: HONG KONG FINANCIAL SECRETARY PRAISES USG'S 
FANNIE/FREDDIE MOVES, FORECASTS SLOWER GROWTH 
 
REF: HONG KONG 1679 
 
¶1. Summary: Hong Kong's Financial Secretary John Tsang told 
local Chinese bankers on September 9 that he supports the 
USG's assumption of control over Freddie Mac and Fannie Mae. 
He said the move calmed the concerns of global investors 
holding debt instruments issued by Fannie/Freddie, but he 
forecast that global financial market turmoil would continue. 
 Tsang expects global economic growth to slow, in part due to 
elevated commodity prices.  Local financial media and market 
analysts also opined that Hong Kong's economic prospects will 
suffer from deteriorating global economies.  At a CG-hosted 
meeting with AmCham officials on September 10, leading U.S. 
businessmen based in Hong Kong described "tough" market 
conditions, and the head of Hong Kong corporate banking at a 
large U.S. investment bank said companies in Hong Kong expect 
no material improvement in the local economy in 2009.  The 
Hang Seng Index closed down today (September 10) by 2.4 
percent, breaking the psychologically important barrier of 
20,000. End summary. 
 
============================================= =========== 
HKG's Primary Finance Official Sees Troubled Times Ahead 
============================================= =========== 
 
¶2. Speaking at a September 9 dinner hosted by the Chi Tung 
Association (a long-standing group of local Chinese bankers), 
Hong Kong's Financial Secretary John Tsang said the USG 
decision to assume control over the operations of Fannie Mae 
and Freddie Mac and stand behind their debt would "help calm 
market concerns" about the solvency and scale of losses at 
the two mortgage giants.  He said the move would also 
"restore the confidence of various central banks" with regard 
to debt issued by Fannie/Freddie.  According to the Hong Kong 
Economic Journal (HKEJ), an independent daily Chinese 
language newspaper, Tsang reassured the Hong Kong bankers 
that the HKG would closely monitor the latest developments in 
global financial markets, while also assessing the impact on 
Hong Kong from the Mainland's macroeconomic adjustment 
measures.  Tsang forecast that the worldwide turmoil in 
financial markets would persist, with global economic growth 
continuing to slow.  He also said elevated commodity prices 
would remain a drain on global purchasing power, thereby 
resulting in decreased demand for Hong Kong's export products. 
 
============================================= == 
Market Analysts Not Optimistic About HK Economy 
============================================= == 
 
¶3. An editorial published in the HKEJ on September 10 warned 
investors to restrain their optimism about the USG's 
placement of Fannie/Freddie under government control. 
Mirroring recent comments by local economist Andy Xie 
(reftel), the editorial said that while the USG's action 
helped avoid a near term "financial disaster," 
Fannie/Freddie's ultimate losses and the after-effects of the 
USG takeover are currently inestimable.  The editorial stated 
that the combination of inflation pressures and "enormous 
levels of bad debt" in the United States would exacerbate an 
economic recession there.  Although the USG's decision to 
backstop the debt of Fannie/Freddie has dissipated local 
concerns with regard to Fannie/Freddie debt held by Mainland 
Chinese banks, the HKEJ used the Fannie/Freddie turbulence to 
urge Mainland banks to boost their transparency with regard 
to their individual holdings of foreign financial assets. 
 
¶4. In an interview with the Oriental Daily News (Chinese 
language daily newspaper) published on September 10, Hong 
Kong-based Union Bank of Switzerland (UBS) economist Jonathan 
Anderson stated that he expects the U.S. and European Union 
economies to slow.  He said global stock markets would likely 
continue to perform poorly over the next six months. 
Anderson also said he is "not optimistic" about economic 
prospects in Asia for the remainder of 2008. 
 
============================================= ========== 
HK AmCham Leaders Brief CG on "Tough" Market Conditions 
============================================= ========== 
 
¶5. At a September 10 meeting the Consul General hosted with 
AmCham officials, the head of HK corporate banking at a large 
U.S. investment bank said that companies in Hong Kong don't 
expect business conditions in 2009 to be much better than in 
¶2008.  Corporate staffing in HK would likely be flat to 
slightly down through next year.  The regional head of a 
large U.S. express delivery company referred to current 
market conditions as "tough," while the president of a major 
 
HONG KONG 00001688  002 OF 002 
 
 
international shipping firm said the sea freight business has 
been "heavily impacted by the U.S. (economic) slowdown." 
 
¶6. The Hang Seng Index (HSI) continued to lose ground on 
September 10, closing down 2.4 percent at 19,999.8.  The 
market was influenced by the substantial decline in U.S. 
stock market indices overnight, as well as concerns about 
U.S. investment bank Lehman Brothers' ability to raise 
capital. 
DONOVAN