By Keith B. Richburg
Washington Post Foreign Service
Monday, January 26, 1998; Page A20

HONG KONG—Dennis Fung is getting worried.

Only recently out of college, Fung, 22, has just been laid off as an administrative assistant in a downtown law firm. The firm specializes in property sales. But with Hong Kong's economy in a funk, the property market is declining and fewer apartments are changing hands, forcing the firm to begin long-feared layoffs.

"I think in my firm about a quarter of the people will go away," Fung said. "It's too terrible. . . . The whole economy has declined so much. Every profession has to fire employees."

After nearly two decades of rising education and affluence -- a period that saw the territory going overseas to find foreign workers willing to take low-end service jobs -- Hong Kong residents now face what for many of them is a new phenomenon: unemployment.

In recent weeks, Hong Kong has seen Peregrine Investment Holdings Ltd. go into bankruptcy, leaving hundreds jobless, followed last week by the collapse of another, smaller finance company, CA Pacific Finance. These follow layoffs from other brokerage houses, including BZW Asia, which let go 75 people, and Schroders PLC, which cut 70 jobs.

Cathay Pacific Airways Ltd., Hong Kong's flagship carrier, announced on Jan. 19 that it is laying off 760 ground staff worldwide, including 460 here in Hong Kong, because the lagging travel industry shows little sign of rebounding soon. A major chain, Yaohan Department Store Ltd., shut its doors in November and laid off 2,700 staffers because of sagging retail sales. Between July and December last year, restaurants laid off an estimated 4,000 people because fewer people are eating out.

There was more bad news over the weekend, as several paging and communications companies said they would be laying off a total of 1,800 workers after the coming Lunar New Year celebration. The layoffs are needed, says the communications industry association, because of Hong Kong's economic slump.

Officially, unemployment here stood at 2.5 percent at the end of December, a level that might be enviable in the West. But government officials and private economic analysts expect that figure to rise as bankruptcies increase, more finance companies close or downsize, and the second wave of the region's ongoing economic crisis begins to hit hotels and travel agencies.

Hong Kong has had higher unemployment before -- the rate reached 3.6 percent in 1995. But that was when Hong Kong had nearly completed restructuring industry, with manufacturing jobs moving across the border into southern China. Now the job losses are coming not from manufacturing but from the service sector, which accounts for 84 percent of Hong Kong's gross domestic product, as opposed to just 9 percent for manufacturing and 5 percent for construction.

Also, after years of prosperity, with per capita incomes topping $25,000 and new college graduates able to coast into well-paying jobs, unemployment for those with a university education is a new and unsettling prospect.

"I'm in a panic," said a 32-year-old woman who lost her job as an executive assistant at Peregrine's. "I've worked in the [financial services] industry for four years," said the woman, who asked that her name not be printed. "I have my husband to support me, so I'm not as worried as the traders -- but I'm still worried."

Young people like Dennis Fung are likely to be hardest hit by the changing job climate. "We lack experience, so they don't want us very much," said Fung, who now scans local newspapers for job openings. "Before, it was not such a big problem."

The economic crisis already appears to be taking an emotional toll. One man who lost his job as a transport worker leaped 24 floors to his death because he didn't have money to buy his daughters new outfits for the Lunar New Year celebrations. A 53-year-old German who owned a travel agency here apparently hanged himself in his office after his business plunged and he sank deeper into debt to hotels, airlines and his own employees. Other reports of suicides have been linked to the economic gloom.

Hong Kong is still, so far, in much better shape than its regional neighbors, particularly South Korea to the north and, to the south, Thailand, Malaysia, the Philippines and Indonesia, where currencies have collapsed an average of 40 percent since July. Firms and factories are being forced to close under mountains of dollar-denominated debt they can no longer pay.

But the regional downturn is affecting Hong Kong on several fronts. Now that fewer Asians, who account for the bulk of Hong Kong's visitors, have money to travel, local hotels and restaurants -- and airlines all over the region -- are feeling the pinch. Hong Kong has made up for some of the falloff as the central government in Beijing authorizes more tourists to vacation here, but that number is still controlled, and local vendors and others complain that tourists from the rest of China generally spend less.

Finance companies here are feeling the squeeze because fewer overseas investors now want to put money into Asia -- jeopardizing the jobs of the Hong Kong-based traders and mutual fund managers.

And as the government keeps interest rates high to fend off speculative attacks against the Hong Kong dollar, which is pegged to the U.S. currency, people must pay more on their mortgages -- and less on luxury goods, designer clothing and expensive meals.

Donald Tsang, the financial secretary, has vowed to defend the dollar peg at all costs, even while conceding, "Hong Kong people are feeling the pinch, especially those who pay mortgages."

In the midst of the regional crisis last year, economists and other analysts predicted that 1998 would begin to see a turnaround and that Asia should be able to rebound economically within a year. Now analysts are revising that estimate and saying the slowdown may be prolonged and the turnaround may not come before 2000.

"The problem is in the banking system," said one, "and a bankrupt banking system is not something you can solve in one year."