In his two-hour-long budget address on Feb 22, Hong Kong’s Financial Secretary Paul Chan did not mention “Covid-19” once. Even if you threw in related words like “epidemic,” the count came to 24, the lowest in three years.
Taking the speech as a proxy for the city’s emphasis on the pathogen, Chan did a sterling job of turning the public’s gaze away from it. The new campaign that replaces that prolonged — and eventually futile — battle to contain the scourge is titled “Happy Hong Kong.”
Just how joyous can the Asian financial centre be this year? There is little doubt that the economic reopening will fill stores, restaurants and the airport with visitors, who will be lured with freebies like shopping and dining privileges. Residents will join in the fun, too, at least to spend the HK$5,000 ($853) consumption vouchers that Chan announced for them in the budget.
On the job-creation front, China’s post-pandemic revival will also benefit the special administrative region in 2023, especially its financial services industry. But on the flip side, continuing with pandemic-era stimulus for another year shows that the economy’s performance is still very much tied to the government’s apron strings.
This time in 2022, rival Singapore planned to drop travel and social restrictions and start living with Covid-19. As a result, the city-state’s private sector slowly took the baton of growth back from massive fiscal pump-priming.
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Hong Kong was generous in opening the budget spigots during the pandemic. But it mimicked the mainland’s isolationist zero-infection policy and lost business and talent to Singapore, its main competitor in the region. There was no handover from public spending to private enterprise.
Singapore’s economy grew 3.6% last year, even with a barely noticeable $2 billion budget deficit; Hong Kong’s output shrank by almost as much, despite a bloated HK$140 billion fiscal shortfall.
Chan is still pencilling in a substantial resource gap of HK$54 billion for the coming year. Last week, his Singaporean counterpart, Singapore’s Deputy Prime Minister and Finance Minister Lawrence Wong, forecasted a deficit equal to 0.1% of the gross domestic product. That is already a balanced budget.
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Before Hong Kong can steady its public finances, it must put some life back in its property market, a source of substantial government revenue. Chan tried to do this in his budget by cutting the stamp duty for first-time buyers of small and mid-sized residential units. This may not be enough, considering that borrowing costs are now a bigger worry. With little consensus on how high the Federal Reserve may push interest rates and how long it may hold them there, a sustained recovery in Hong Kong’s property market is unlikely this year.
Meanwhile, the city’s builders have thousands of new homes to sell. “Developers’ ample project pipelines and probable interest-rate hikes might put more mortgage holders underwater,” Bloomberg Intelligence analysts Patrick Wong and Yan Chi Wong wrote recently.
Still, Hong Kong is not completely out of the cards. Chan announced a task force to devise a plan for a crypto hub — something that appears to enjoy Beijing’s backing. This is an area where Singapore is starting to look weak after FTX and other debacles last year put a question mark on the adequacy of the city’s regulatory approach, especially when protecting customer funds.
Another of Hong Kong’s proposals centres on healthcare research, artificial intelligence, quantum technologies and microelectronics. It is setting aside billions of dollars to pursue talent worldwide in these areas.
It is also unclear if this will reverse the hollowing out of the city’s human capital that began with the Beijing-imposed national security law and was aggravated by the Covid-19 crisis.
Those expecting tax breaks for expatriates and other sops to boost Hong Kong’s international standing would be disappointed.
However, the resident population is more optimistic now than in the past several years. This may be a good time to invest in new fields while deepening capabilities in industries where Hong Kong is already strong, such as private banking, asset management and family offices for the wealthy. “I now see many happy faces around,” Chan said in his speech.
Seeing those faces in public is still impossible, as everyone still wears masks. But yes, the misery quotient has decreased considerably with the recent dismantling of travel and social-distancing restrictions. Given how badly Hong Kong wants to be back in the contest with Singapore, maybe the mandated face coverings will also go soon. — Bloomberg Opinion
