HK economy: Hands Tied Tight?

Wow, an actually interesting day of classes. I love when professors take the time to apply the very basic concepts we're learning (I should say re-learning) to what is happening here in Hong Kong. I'm just begining to grasp the predicament in which the Hong Kong economy finds itself. With one hand tied by the Fed and and the other by Basic Law , there's little room for flexibility. The Fed needs to raise interest rates to cut back on spending in the US economy. Now, HK interest rates are raised in response, even though the HK economy isn't in a position where it needs to be cutting back on spending. So, their economy contracts and GDP falls. Adjusting through Fiscal Policy is severely limited by HK Basic Law in the sense that HK can't dip into budget defecit for an extended amount of time...I'm not sure if that's explicitely stated, or why, but apparently Basic Law is nearly as difficult to ammend as the US Constitution according to my prof, so changes would be difficult to say the least.

Now Shenzhen comes along and makes things messier by grabbing at HK's market share of the shipping industry by building a port which has swiftly stolen Hong Kong's title as world's 4th busiest port as of 2005. Because of its convenient location near factories in Guangdong province, by-passing Hong Kong's hub completely and going through Shenzhen makes a lot more sense logistically to exporters.

Ok, so yes, my understanding is fairly elementary at this point, but man, definitely seems like HK has little to no flexibility in making economic adjustment, and that it's getting bullied by Shenzhen hardcore.

Adam, you're probably the only one still reading at this point...I am saddened by the lack of dorks around here to have this conversation with, so I've resorted to blogging it. I hope you appreciate.