2005 and 2006

Real GDP Growth in the past 10 years Average 3.3% 1.0% 8.4% 3.1%

% F2006F U.S Japan China PEO Economies (weighted average) East Asia Other PEO economies Hong Kong Real GDP Growth Rate Forecasts

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

Date of Forecast: March 21, Y-o-y growth rate (%) F2006F Gross Domestic Product Private Consumption Expenditure Gross Investment Real Exports of Goods & Services Export of Goods Export of Services Real Imports of Goods & Services Import of Goods Import of Services

Private Consumption Expenditure (volume) F2006F PCE6.9%4.6%3.5%

Gross Domestic Fixed Capital Formation (volume) F2006F Investment4.1%2.8%2.4%

Merchandise Trade F2006F Exports15.3%10.0%9.1% Imports13.8%9.8%8.9%

Visitor Arrivals

Record-breaking performance to be expected F2006F Total Visitor Arrivals (mn) Total Tourism Expenditure (HK$ bn) 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) F2006F Inflation-0.4%1.5%2.0%

Unemployment Rate (Seasonally Adjusted)

Hang Seng Index versus Nasdaq

Property Price Indices 1999=100

Residential Mortgages Loans in Negative Equity

Risk: Depreciation of US dollar USD Trade Weighted Index – Broad Jan 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 Risk: Interest Rate Increases