Research & Paper | January 21st, 2010 |

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1. Premier of the State Council Wen Jiabao urged the Chief Executive Donald Tsang to resolve the “deep-rooted problems” during the latter’s duty visit to Beijing in
late 2009. 1 The Chief Executive subsequently interpreted that “the Premier was referring under the context of economic development”.2 He later added that “there are many deep-rooted problems in which Hong Kong have to meet problems. It is not confined to economic transformation, but also political and social conflicts as well.”3 We do not intend to initiate debate from the sensitive political and social perspectives in this report, but hope that the Government can take advantage of the forthcoming Budget to deal with economic and livelihood issues related to the “deep-rooted problems”.

2. Hong Kong’s business environment has been deteriorated in recent years. One of the most cited reasons for such deterioration is the high land prices and rental
costs. As of the third quarter of 2009, the retail rental in Hong Kong ranked second highest in the world, same as the previous quarter, with an average rent of HK$634 per square feet.4 From January to December 21 2009, there were 3 692 transactions in the retail market, involving capital nearly HK$35.913 billion, accounting for a 27% increase in transaction volume and 44% increase in market value year-on-year5 In terms of residential property prices, the Centa-City Leading Index stood at 72.61 points by the end of 2009, representing a rise of 28.8% a year ago.6 High land prices and rentals have directly undermined Hong Kong’s competitiveness.

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