2005 and 2006

Real GDP Growth in the past 10 years

-5

0

5

10

15

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

%

U.S. Japan China Hong Kong

Average 3.3% 1.0% 8.4% 3.1%

% 2004 2005F 2006F

U.S. 4.4 3.5 3.3

Japan 2.6 1.3 1.6

China 9.5 8.5 8.2

PEO Economies (weighted average) 5.4 4.2 4.2

East Asia 6.5 4.9 5.0

Other PEO economies 4.2 3.4 3.3

Hong Kong 8.1 4.7 4.1

Real GDP Growth Rate Forecasts

0

2

4

6

8

10

PEOEconomies

U.S. Japan China Hong Kong

%

2004 2005F 2006F

Real GDP Growth Forecasts

Strong Growth in 2004

• Strongest growth in real GDP in about 20 years for the global economy

• A sharp rebound in East Asia from 2003, which was marked by the SARS outbreak in parts of the region

• Strong growth in U.S. led by very strong domestic demand

• China confirmed as a new growth engine for the region

• Strong growth in China led by fixed asset investment and consumption

• China overtook Japan as the 2nd most important trading partner for many Asia Pacific economies; and overtook the U.S. as Japan’s most important trading partner

2005 Slowdown

•Slower but still robust growth

•Further monetary tightening

•The growth engines – China and the U.S. are both projected to slow down

•Investment is projected to continue to decline in China

•Higher energy and non-oil commodity prices

•Slower growth in Southeast Asia

2006 Consolidation

•Lower oil prices

•Tightening monetary policy

•Dollar value of the U.S. current-account deficit should start to fall as a share of GDP

•Lagged effects of U.S. dollar depreciation should start to show up in higher levels of exports and lower growth of imports

Hong Kong’s Real GDP Growth

5.1

-5

3.4

10.2

0.51.9

3.1

8.1

4.7 4.1

-10

-5

0

5

10

15

1997 1998 1999 2000 2001 2002 2003 2004 2005F 2006F

y-o-

y %

cha

nge

Date of Forecast: March 21, 2005.

Y-o-y growth rate (%) 2002 2003 2004 2005F 2006F

Gross Domestic Product 1.9 3.1 8.1 4.7 4.1

Private Consumption Expenditure -1.1 -1.1 6.9 4.6 3.5

Gross Investment -4.5 0.9 4.1 2.8 2.4

Real Exports of Goods & Services 9.2 13.1 15.3 10.0 9.1

Export of Goods 8.7 14.2 15.3 10.1 9.2

Export of Services 11.7 8.1 15.0 10.0 8.5

Real Imports of Goods & Services 7.5 11.5 13.8 9.8 8.9

Import of Goods 7.9 13.1 14.1 10.0 9.0

Import of Services 3.7 -2.1 10.7 8.0 7.5

Private Consumption Expenditure(volume)

0.3

-2.3-1.0 -1.3

-3.5-4.8

0.1

3.95.7

10.9

5.3 5.94.6

-10

-5

0

5

10

15

02Q1 03Q1 04Q1 05Q1

Y-o

-y %

cha

nge

2004 2005F 2006F

PCE 6.9% 4.6% 3.5%

-12.2

-1.0

-4.4

-0.3

5.0

-4.7

0.82.7

5.1

11.5

2.2

-1.4

2.2

-15

-10

-5

0

5

10

15

02Q1 03Q1 04Q1 05Q1

Y-o

-y %

cha

nge

Gross Domestic Fixed Capital Formation(volume)

2004 2005F 2006F

Investment 4.1% 2.8% 2.4%

Merchandise Trade

-20

-15

-10

-5

0

5

Jan-02 Jan-03 Jan-04 Jan-05

HK$ bn

0

50

100

150

200

250

HK$ bn

Balance Imports Exports

2004 2005F 2006F

Exports 15.3% 10.0% 9.1%Imports 13.8% 9.8% 8.9%

Visitor Arrivals

0

500

1,000

1,500

2,000

2,500

Jan-02 Jan-03 Jan-04 Jan-05

Per

son

('000

)

0

20

40

60

80

100

% o

f V

A f

rom

Mai

nlan

d C

hina

.

Mainland (non-IVS) Mainland (under IVS)

Other Countries % of Mainland Visitors

Record-breaking performance to be expected

2004 2005F 2006F

Total Visitor Arrivals (mn) 21.8 23.41 27.14

Total Tourism Expenditure (HK$ bn) 91.8 97.8 114.7

• Hong Kong Disneyland will open in September 2005

• Other new infrastructure projects include Hong Kong Wetland Park and Tung Chung Cable Car

• An additional funding of HK$470 million will be used by HKTB to implement the 2006 Discover Hong Kong Year Campaign

Source: Hong Kong Tourism Board

Composite CPI(y-o-y % change)

-10

-5

0

5

10

Jan-97 Jan-99 Jan-01 Jan-03 Jan-05

%

2004 2005F 2006F

Inflation -0.4% 1.5% 2.0%

Unemployment Rate(Seasonally Adjusted)

5

6

7

8

9

Jan-02 Jan-03 Jan-04 Jan-05

End month of 3-month average

Rat

e (%

)

Hang Seng Index versus Nasdaq

3,000

6,000

9,000

12,000

15,000

Jan-02 Jan-03 Jan-04 Jan-05

500

1,000

1,500

2,000

2,500

Hang Seng Index Nasdaq

Property Price Indices1999=100

25

50

75

100

125

150

Jan-02 Jan-03 Jan-04 Jan-05

Domestic Premises Offices Retail Premises Flatted Factories

Residential Mortgages Loans in Negative Equity

0

20

40

60

80

100

120

Mar2002

Jun Sep Dec Mar2003

Jun Sep Dec Mar2004

Jun Sep Dec Mar2005

No. ('000)

0

30

60

90

120

150

180

HK$ bn

Number Value

Risk: Depreciation of US dollar

100

110

120

130

140

Jan-02 Jan-03 Jan-04 Jan-05

USD Trade Weighted Index – BroadJan 97 = 100

•A further widening imbalance in trade and financial flows (current-account deficit in U.S. vs. current-account surpluses in many East Asian economies)

•U.S. current-account deficit expected to reach a record US$775 billion or 6.1% of GDP by year end

•PEO forecasts a fall in the trade-weighted US dollar of 6.1% in 2005 and 5.6% in 2006

•A sudden loss of confidence in the US dollar could precipitate a disorderly decline in the value of the US currency

•The current-account surplus in China will rise from 2.4% in 2004 to 3.1% in 2005 and 3.3% in 2006, fuelling calls for early

revaluation of the yuan and fanning protectionist sentiment in industrialized countries

HIBOR versus LIBOR

-300

-150

0

150

300

Jan-02 Jan-03 Jan-04 Jan-05

bp

-4

-2

0

2

4

% pa

Spread of 3-month HIBOR over LIBOR 3-month HIBOR 3-month LIBOR

Risk: Interest Rate Increases