Hong Kong jobless rate hits 7.7 percent


Economists say things could get worse for Hong Kong as graduates enter the job market and companies cut back

HONG KONG, China (Reuters) -- Hong Kong's unemployment rate edged up to a new record high in the three months to June.

That is dealing Hong Kong stocks a blow on Wednesday. The Hang Seng is 1.87 percent lower, at 10,226.69, just before 11 a.m. local time. Only Asia's secondary markets are down more.

Economists say things could get even worse in coming months as more companies slash costs and a flood of fresh graduates enter the labor market.

"The unemployment rate will likely stay high in the short term," the government said in a statement on Tuesday.

The unemployment rate rose to 7.7 percent for April-June from 7.4 percent in March-May with the restaurant, manufacturing, real estate and wholesale trade sectors among the worst hit, the statement said.

Highest since records started in 1981

The figure is the highest since the government started keeping records in the current format in 1981 and was slightly above an average forecast of 7.6 percent by six economists.

Some 264,000 people are now out of work in the once booming territory of nearly seven million and nearly a third of its families are believed to be living below the poverty line.

The underemployment rate was 2.9 percent for April-June, versus 3.1 percent in the previous period. Growing joblessness has led to widespread dissatisfaction with the local government.

On Tuesday, members of a trade union staged a small protest in the driving rain outside the government headquarter buildings, urging leader Tung Chee-hwa to solve the unemployment problem.

Some economists said they expect the unemployment rate to keep climbing before peaking at around eight percent sometime in the third quarter. Most expect some improvement late in the year, assuming the U.S. economic recovery remains on track.

The United States is Hong Kong's second largest trading partner after China. But few expect the Hong Kong's jobless rate will return to its pre-Asian financial crisis level of 2.2 percent in the near future.

"Hong Kong won't return to that level, in my opinion, not in 10 years' time," said Frank Gong, senior economist at the Bank of America, who forecast the full-year unemployment rate would be around 7.4 percent.

Survival depends on services

"The only way to survive, to compete, is to develop high value-added services on its high cost base but the problem is Hong Kong's education level is very low, more than 50 percent of the labor force don't have college degrees," Gong said.

Hardly a week seems to go by without a store or company announcing layoffs or shutting their doors.

One of the largest mass layoffs in Hong Kong's history took place in June when 2,000 people were sacked with the closure of the Treasure Restaurant chain, among the territory's oldest and biggest (full story).

On Tuesday, a branch of popular restaurant chain Hon Po Group (Lobster King) Ltd closed its doors and 86 people were laid off, the firm told Reuters.

Meanwhile, the number of people looking for work is growing. Up to 20,000 graduates could hit the streets this summer in search of jobs.

"The result was an upset of the manpower resource balance which further increased the unemployment rate," the government said in a statement.

The government said it is launching a Youth Work Experience and Training Scheme next week, which could provide on the job training for about 10,000 young people in the next two years.