Hong Kong government dishes out sweeteners worth HK$19.1 billion to soothe a faltering economy hit by US-China trade war and political unrest

Olga Wong

The Hong Kong government unveiled a hefty package of relief measures worth HK$19.1 billion (US$2.4 billion) on Thursday as it downgraded the growth forecast to 0 to 1 per cent, citing strong economic headwinds but also indirectly blaming the festering protests.

The sweeteners, spanning help for small businesses to student subsidies and fee waivers for low-income households, will cost the government nearly 50 per cent more than it had originally planned for one-off measures in the annual budget for this year, which carried the price tag of HK$42.9 billion.

Making the announcement, Financial Secretary Paul Chan Mo-po cited a host of reasons for the relief measures but studiously avoided the word “protests”, describing the anti-government demonstrations of the past two months instead as “recent social incidents”.

“If growth does hit 0 to 1 per cent, this will be the worst situation we have faced since 2009,” Chan said, as he announced the downward revision from the original forecast of 2 to 3 per cent.

He also warned that the city’s economy could enter into a technical recession, citing the slowing growth trajectory and the contraction by 0.3 per cent in the second quarter.

“If Hong Kong’s economy grows in the third quarter at a similar pace to the second, the city will be technically in a recession,” Chan warned.

He spelt out a total of seven measures to support enterprises and safeguard jobs, as well as seven other initiatives to relieve people’s burdens, such as further tax reductions and subsidies for 900,000 students, from kindergarten to secondary school levels.

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More packages will be rolled out by other government bodies soon. Several of the relief measures will need the approval of the Legislative Council which is now in recess.

While pro-establishment lawmakers said the measures were timely, pan-democrats warned that social tensions could not be easily erased by just spending public money.

Paul Chan says the pressure on the economy is obvious. Photo: Winson Wong

But Chan denied the package was to solve such problems.

“The measures are definitely not related to the political difficulties we are facing, they are aimed at economic challenges,” he said. “Just like when we are facing a typhoon, we have to get ready.”

Secretary for Commerce and Economic Development Edward Yau Tang-wah echoed Chan’s view, as he said: “Apart from dealing with the aforementioned demands [from protesters], we have to introduce measures to help enterprises and safeguard employment.”

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The government’s moves – which had been the subject of speculation for days – came as Hong Kong International Airport returned to normal operations on Thursday, two days after bosses there obtained a court injunction against unauthorised demonstrations.

Protests from Friday to Tuesday had caused the cancellation of nearly 1,000 flights and angered international travellers.

But Hong Kong is still bracing for a potentially chaotic weekend, as police banned a planned march from Hung Hom to To Kwai Wan on Saturday, as well as one proposed by the Civil Human Rights Front from Causeway Bay to Central on Sunday.

Police allowed the front to host only a rally in Victoria Park on that day, but protesters have defied the force’s bans before and occupied roads on previous weekends.

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At a press conference on Thursday, Chan warned of the prospect of a technical recession, which means two successive quarters of negative growth, as he announced how GDP decreased by 0.3 per cent in the second quarter compared to the first quarter.

“The pressure on Hong Kong’s economy to go down in the second quarter was obvious,” Chan said.

“Our year-on-year growth has been getting lower and lower for six consecutive quarters since the first quarter of last year. We previously estimated that there would be 0.6 per cent growth in the second quarter, but the final figure will only be announced on Friday.”

Businesses are facing headwinds as the economy slows. Photo: Edmond So

The seven measures to relieve people’s burdens include a further reduction in salaries tax for 2018-19 from 75 per cent to 100 per cent while retaining the ceiling of HK$20,000. About 1.43 million taxpayers will benefit while the government’s estimated revenue will decrease a further HK$1.84 billion.

The government will also provide an extra allowance to social security, old age, disability and working family allowance recipients.

Students, from kindergarten to secondary school levels, will get a subsidy and lower-income tenants in public housing flats will get one month free rental. All households will also get a one-off electricity charge subsidy of HK$2,000 to each resident account.

Even low-income families who do not live in public housing and not on social security, commonly known as the “N-nothing” households, could stand to benefit as the government will ask the Community Care Fund to consider providing a one-off living subsidy for them.

Paul Chan talked of ‘recent social incidents’ but avoided the word ‘protest’. Photo: Sam Tsang

Asked why university students – widely seen as the vanguard of the anti-extradition bill movement – would not be getting a subsidy, Chan said there were existing grants and loans to help those in need.

Relief measures will also be announced by five other bodies – the Housing Authority, Airport Authority, Construction Industry Council, Hong Kong Science and Technology Parks Corporation and Cyberport.

The measures for enterprises include waiving 27 groups of government fees and charges; reducing rents for most short-term tenancies of government land for community and business use; implementing a fee review moratorium on government fees and charges; and further enhancements to two government funds on branding, upgrading, domestic sales, and export marketing.

The measures are definitely not related to the political difficulties we are facing, they are aimed at economic challenges

Paul Chan, financial secretary

The Hong Kong Mortgage Corporation will introduce a new loan guarantee product to help small and medium enterprises, the government will continue to explore room for increasing or expediting minor work projects, while the Employees Retraining Board will plan training programmes for unemployed or underemployed workers.

In his opening remarks, the closest Chan came to mentioning the protests was to describe how “recent social incidents” had hit the retail and tourism sectors and affected the city’s international image, as 29 countries had issued travel warnings against Hong Kong while credit rating agencies had also expressed concerns.

“The Hong Kong economy faced significant downward pressure … The situation has turned even more austere in recent months,” he said, citing the multiple gusts of ill winds, from the global economic outlook worsening to the escalation of US-China trade tensions and the risk of a hard Brexit and sluggish industrial and trading activities in Asia.

“Based on the latest developments … the Hong Kong economy will continue to face an austere environment in the rest of the year. As such, the government has to revise downwards the real growth forecast for the economy in 2019 as a whole to 0 per cent to 1 per cent.”

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The government also noted that many of these measures would not be rolled out immediately. The proposal to increase salaries tax reduction would need Legco’s approval after it reconvened in October while the waiving or adjustment of fees and measures that required additional resources would also need its approval.

Democratic Party lawmaker Lam Cheuk-ting said the government could not resolve the political crisis by introducing relief measures, even though his party did not object to them.

“This is a political issue, not an economic issue, stupid,” Lam said.

“You have to resolve the political crisis, so public opinion can stabilise and the economy can recover.”

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