Hong Kong Chief Executive John Lee unveiled a plan to woo back foreign talent and ease housing woes, to revive the city’s status as a thriving international finance hub.
In his maiden policy address, the city leader Wednesday announced he would cut property duties for non-permanent residents and relax visa rules to reverse a brain drain prompted by years of isolationist Covid policies and political turmoil.
Still, his nearly three-hour speech didn’t address pandemic curbs until its final moments, and then offered no specifics on how the city would emerge from restrictions that still subject arrivals to days of PCR tests, outdoor mask mandates, and an initial ban on visiting bars and restaurants.
“Hong Kong is one of the most competitive economies in the world,” Lee said. “It also serves as an important gateway connecting the mainland with global markets. We must be more proactive and aggressive in competing for enterprises and competing for talents.”
The address disappointed some economists and investors who said Lee’s proposals lacked a major policy shakeup. Hong Kong faces mounting competition from Singapore as a regional hub for global business and talent, as well as a growing likelihood of economic contraction for the third time in four years.
“John Lee’s maiden policy address is no game-changer to the rusted economic engine in Hong Kong,” said Alicia Garcia Herrero, Asia Pacific chief economist at Natixis SA. “The problems are identified but only with partial solutions.”
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The Hang Seng Index was down 1.5% at 1:55 p.m. local time after Lee finished delivering his address. A sub-index of property developers dropped 0.7%, erasing gains before his speech of 2.8%.
Lee, who took office in July, has a tough road ahead. The economy has struggled as fallout from Covid restrictions, rising interest rates, global inflation and Russia’s war in Ukraine all pummel growth. The labour force has dropped to near-decade lows as the population ages and people leave. A growing budget shortfall has also created risks for future government spending.
Lee acknowledged many of those headwinds during his speech, echoing language used by President Xi Jinping. “The world is undergoing profound changes unseen in a century,” he said, citing high inflation, interest rate hikes, geopolitical tensions and other factors as having “weakened the growth momentum of the global economy.”
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Countering Singapore
Lee outlined a two-year visa program for people who bring in at least HK$2.5 million ($318,480) annually that will allow them to explore opportunities in Hong Kong. Recent graduates of the world’s top 100 universities with at least three years of work experience will also be eligible for such visas, he added.
The city will also suspend the annual quota of its current program for skilled talent and extend the limit of stay for non-local graduates from one to two years.
The proposals come two months after Singapore announced its own five-year work visa program for foreigners earning S$360,000 ($253,530) annually, citing a hypercompetitive battle for global talent.
While Hong Kong has relaxed its toughest Covid restrictions in recent weeks, chiefly ending hotel quarantine for arrivals last month, it has trailed Singapore, which in spring dropped many of its most prohibitive curbs and has been outspoken about needing to position itself as a premier financial hub and global city.
Hong Kong’s visa changes will likely target young mainland Chinese talent, Herrero of Natixis said -- though that may be challenging, given existing Covid restrictions in China. “For the rest of the world, it doesn’t make a big difference,” she added.
The university visa program, meanwhile, echoes a similar talent incentive program in the United Kingdom, which earlier this year launched a two-year visa plan for jobseekers who have graduated from top-ranked universities in the past five years.
The new visa program will help extend positive momentum for the city’s labor force, said Woei Chen Ho, an economist at United Overseas Bank Ltd. Since August 2018, Hong Kong’s labor force has dropped about 5.5%, according to the latest official figures for the same month.
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“Deterrence from the Covid policy remains,” she said, pointing out that mainland Chinese residents coming into the city still have to consider quarantine measures upon their return to China, which has been steadfast in its pursuit of Covid Zero.
Businesses may also be disappointed that Hong Kong did not set conditions for lifting measures that still impose some restrictions on movement for arrivals to the city, Ho said, adding that there were also no details on reopening borders with the mainland.
Property Proposals
Lee announced a plan to refund extra property stamp duties paid by non-permanent resident buyers. Once they’ve have lived in the city for seven years -- long enough to become permanent residents -- those buyers can apply for refunds of two separate stamp duties that are each fixed at 15%. They still have to pay for another duty capped at 4.25%, which applies to all city residents.
The changes for foreign buyers could benefit the mid-to-high-end property market, according to Raymond Cheng, analyst at CGS-CIMB Securities Hong Kong Ltd., who called the savings “quite meaningful.”
But delaying a refund for seven years may also be prohibitive to prospective homebuyers, said Patrick Wong, a real estate analyst at Bloomberg Intelligence.
“The stamp-duty refund for eligible incoming talents means that they still need to pay a huge amount of money upfront for luxury home purchases in addition to the down payment,” Wong said. “This is not ideal particularly for those just arriving Hong Kong recently, as it will take a maximum of seven years for them to get the refund.”
Hong Kong’s property market is one of the world’s most expensive, and the sector has been slumping as a result of rising rates and a population outflow.
Secondary home prices have dropped 8% since the start of the year and are on track to approach a five-year-low. Goldman Sachs Group Inc. expects home prices to plunge 30% through 2023 from last year’s levels.
To help more people access the housing market’s costly barrier to entry, Lee also detailed a proposal to expand homeownership. He vowed to increase overall public housing production by about 50% in the coming five years.
National Security
Lee also used his most important address since taking office in July to express his gratitude to Chinese President Xi Jinping. The city leader said Xi’s Sunday speech at a major congress in Beijing would serve as his “blueprint” for governing Hong Kong.
In that address, Xi credited a national security law enacted in June 2020, along with an electoral overhaul to ensure governance under approved “patriots,” with restoring order to the city. The Chinese leader also stressed the “one country, two systems” governance model in Hong Kong “must be adhered to over the long term.”
National security has been a key theme of policy addresses in recent years, and Lee made clear it’s still a priority. He emphasized the city must remain vigilant to threats and recommitted to implementing Hong Kong’s own local security law, Article 23, without setting any timeframe for achieving this.
Other details from Lee’s policy address:
Hong Kong will set aside HK$30 billion (US$3.8 billion) to establish a “Co-Investment Fund” for attracting companies to set up operations in Hong Kong and investing in their business
Hong Kong will match China’s development policies to solidify its role as a regional hub
The city’s stock exchange will revise the mainboard listing rules next year to facilitate fundraising, and to revitalize the Growth Enterprise Market, a market with lower listing eligibility criteria
The Hong Kong Monetary Authority is starting preparation on digital Hong Kong dollars
The city aims to attract 100 high-potential innovation and technology enterprises to the city to boost economic value and jobs
Hong Kong will promote its fintech industry, offer tax concessions to family offices
