Our own study further suggests that, contrary to popular intuition, a devaluation of the renminbi might actually provide a stimulus to the Hong Kong economy: this is because the positive impact on demand arising from the complementarities between the two economies would outweigh the negative impact of any loss of competitiveness in those relatively few activities where the two economies remain in competition with each other. Such complementarities are in part reflected in Hong Kong’s role as a major entrepot for mainland exports. For any renminbi devaluation, while Hong Kong’s own direct trade balance with the mainland will deteriorate, our re-exports of mainland origin should rise. Indeed, with the surge in mainland re-exports activities since the early 1980s, the margins earned on such re-exports are now larger than all other components of Hong Kong’s trade with the mainland combined. Conclusion I have suggested in this address that China’s accession to the WTO will bring benefits to Hong Kong on a number of fronts. WTO entry will see a vast and rapid increase in China’s external trade. Not all of this additional trade will go through Hong Kong, but nor will it all avoid Hong Kong. More important still, the stimulus to liberalisation, globalisation and better corporate governance will expand and deepen Hong Kong’s well-established role as a fund of professional expertise, a centre of international experience and a source and channel of investment.
What is clear however is that we have to overhaul our traditional ways of measuring, assessing and reacting to productivity and welfare indicators. Socially, uncertainty will weigh heavily on people’s shoulders in the years to come amid these structural changes. How should policymakers react? The fact that our established gauges have lost their assumed precision does not mean that we have become clueless. In spite of the elevated uncertainty, it is still possible to grasp the obvious. Potential output may not the most reliable benchmark in the current environment. Moreover, perhaps it misses the broader structural changes, which are of paramount importance in the longer run pursuit of improvements in standards of living. So it is crucial that policy makers pay heed to broad and thorough analyses, coupled with an understanding of the limitations to our understanding we face at this time. In this way, modest judgment and prudent action will provide the indispensable preconditions for policymakers to live up to their responsibilities. 6  BIS central bankers’ speeches