Hong Kong to spend heavily to rejuvenate a shrinking economy

By Chi Jingyi Source:Global Times Published: 2020/2/26 18:13:41

Aerial photo taken on June 27, 2017 shows the scenery on the both sides of the Victoria Harbour in Hong Kong SAR, south China. (Xinhua/Lui Siu Wai)



The Hong Kong Special Administrative Region (HKSAR) on Wednesday announced a wide range of measures to tackle economic difficulties the region faces by reaching deeper to its fiscal reserve.

Ding Meng, a senior strategist at Bank of China's Macao branch, said Hong Kong needs to stimulate the local economy through proactive fiscal moves since the economic outlook is dim.

"Fiscal policy is at present the most effective way to boost Hong Kong's regional economy," Ding told the Global Times on Wednesday, because Hong Kong uses an exchange rate system that pegs the Hong Kong dollar to the US dollar in order to maintain a stable currency.

"The wide range of measures under the fiscal policy will certainly ease the downward pressure on Hong Kong's economy, but the effect will depend on when the outbreak will come to an end. Many of Hong Kong's key industries such as finance, services and tourism have been severely battered by the virus attack," Ding added.

Hong Kong will implement counter-cyclical measures on a massive scale involving some HK$120 billion ($15.4 billion), including tax cuts and cash hand-outs of HK$10,000 to Hong Kong permanent residents aged 18 or above, according to Paul Chan Mo-po, financial secretary for the HKSAR, who gave a speech on the 2020-21 budget plan for the SAR on Wednesday.

Financial Secretary for the Hong Kong Special Administrative Region Paul Chan Mo-po gives a speech on the 2020-21 budget of Hong Kong in the Legislative Council on February 26. (Photo: HKSAR government)



This measure, which involves government spending of about $71 billion, is expected to benefit about 7 million local residents.

"The measures that will be implemented in Hong Kong will help support enterprises, safeguard jobs, stimulate the economy and relieve people's burdens," Hu Qimu, a senior fellow at the Sinosteel Economic Research Institute, told the Global Times.

The budget deficit for the new fiscal year is planned at HK$139.1 billion, a record high after the first fiscal deficit in 2019-20 for Hong Kong in the last 15 years.

"Only with such a budget can we help our community and local enterprises ride out their current difficulties," said Chan. He forecasted deficits for the next five years as well. 

Chan said that GDP may wobble between contracting 1.5 percent to growing 0.5 percent in 2020, because Hong Kong's economy is facing enormous challenges this year and it shrank 1.2 percent in 2019, its first contraction since 2009.

Confronted by the slowdown in growth across most economies, Hong Kong's total exports of goods fell by 4.7 percent in 2019. Hit by a ferocious social turmoil lasting months in Hong Kong, exports of travel services plunged 10.4 percent last year, the largest annual decline on record.

Although Hong Kong's economy was hit hard by the social unrest last year and the novel coronavirus epidemic in the beginning of 2020, Chan noted that Hong Kong's economic fundamentals remain solid and therefore its core competitiveness is not likely to be shaken.



Posted in: ECONOMY

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