And how far, in any case, would we be able to avoid importing US monetary policy even in the absence of the Link? The experience elsewhere in the region does not give ground for much optimism. The third question is how far the Link is fuelling deflation, and how far this is detrimental to our economy. Internal price deflation is indeed a part - and a necessary part - of the process of adjustment imposed on the economy under the Link when there is a fall off in external demand. It is also, incidentally, a feature of our longer-term economic integration with the Mainland of China. It is the counterpart of currency depreciation under a floating regime, except that the adjustments that it forces to take place tend to involve less overshooting, less instability, and more lasting restructuring. Price deflation brings pain to those who see the value of their assets shrink dramatically, and, as we know, there are many in Hong Kong who are, sadly, in this position. But there are many more who have seen their purchasing power increase, as prices for the whole range of goods and services steadily decline. And the effect, equivalent to that of devaluation, on adding to the attraction of Hong Kong as a regional centre, and as a destination for tourists, can only be positive. The concern comes when price deflation, as part of the adjustment process under the Link, turns into the kind of spiralling deflation that inhibits investment and fuels recession.
Significant resources have been devoted by the Bank in the last two years to achieve these objectives. One of it was the relicensing process. We had reassessed a total of 839 money changing companies and remittance service providers and issued new licences to those that met the necessary requirements. We have also provided time for companies to improve their operations. These companies had demonstrated that they are able to comply with the required rules. For those that qualify the licensing processes, improvements in their operations could be achieved within a reasonable timeframe. We have also made it clear to the industry that companies found to be carrying out unauthorised activities will be firmly dealt with through enforcement actions. Out of the 839 licenses issued earlier, the relicensing process had reduced a total of 365 licenses as a result of revocation, merger, voluntary surrender of license or industry players themselves decided to convert to become an agent of a larger entity. We have significantly increased our interactions with the industry to help companies understand the regulatory requirements that must be observed. These engagements have also helped the Bank better understand the practical issues that are faced by the industry and we have responded accordingly to some of these issues. I can assure you that we will continue to work with the industry to find solutions to legitimate issues raised by the industry but the industry must act responsibly and with the public’s interest in mind. Enforcing compliance will continue to be an important focus of the Bank.