Hong Kong’s struggling economy demands more attention

The condition of Hong Kong’s economy should be of great concern to us all. Indeed, it was partly with the city’s economy in mind that COVID-19 restrictions for people entering Hong Kong were reduced to “0+3”. At the same, compulsory hotel quarantine has been substituted by three days of self-monitoring, either at home or in a hotel.

The aim of this relaxation of quarantine requirements was to allow the city to return to partial normality, thereby taking part of the millstone off Hong Kong’s neck. The move has been regarded as an effective way to encourage more visitors to come to Hong Kong and provide a much-needed boost to the economy.

However, it seems the reverse has happened, with scores of local residents, encouraged by more-lenient restrictions, disappearing overseas for their holidays, resulting in a net outflow of tourist money from Hong Kong.

In a blog post on Sunday, Financial Secretary Paul Chan Mo-po rightly warned that the local economy had been hit hard not only by the coronavirus pandemic, but also by tightened monetary policies imposed by central banks around the world.

This year, the Hong Kong Special Administrative Region government’s fiscal position is likely to be “worse than expected”, according to Chan. His forecast budget deficit of more than HK$100 billion ($12.8 billion) for the 2022-23 fiscal year makes it the second-highest in 20 years. The worst deficit of the past two decades was HK$232.5 billion, recorded in 2020. The figure for the 2021-22 fiscal year was better — with a small surplus after the HK$29.1 billion the government raised by issuing green bonds was added.

Chan stressed the 2022-23 forecast deficit would have been even higher had he not taken into account the HK$35 billion the government is set to raise from a further issuance of green bonds.

Accountancy firm Deloitte has openly forecast this year’s budget deficit at HK$170 billion, 70 percent higher than the government’s estimate. Other financial experts have put forward similar amounts.

A deficit of HK$100 billion for the 2022-23 financial year would almost double the original forecast of HK$53.6 billion stated in the annual budget delivered by the financial secretary back in February.

Combined, the deficits of 2020-21 and 2022-23 alone amount to almost HK$400 billion, in a city with a population of 7.4 million. In other words, a deficit of HK$50,000 per capita. This does not bode well for the financial health of the city.

Surprisingly, this depressing financial outlook doesn’t appear to be registering with, or triggering any concern, among the general population or opinion leaders, let alone Legislative Council members, despite repeated and public warnings by the financial secretary.

In March this year, it was reported that Hong Kong had about HK$957 billion in fiscal reserves, a handsome sum, but by next March the amount will be depleted to less than HK$800 billion — barely enough to cover public spending for 14 months.

The last time the city found itself in such a vulnerable financial position was in 2003.

Public coffers have been depleted, largely because the government spent big on helping Hong Kong through the pandemic. These measures included programs to relieve the financial pain caused by social restrictions on local businesses, primarily by handing out e-consumption vouchers for residents to spend this year.

The government still has to fund the last leg of the Consumption Voucher Scheme this December, along with commitments made in the sixth round of the HK$27 billion Anti-epidemic Fund, approved by the Legislative Council back in February.

A large portion of government revenue depends on the property and stock markets. But the current property and stock markets downturn has led to lower transactions, and therefore a decline in stamp duties — a not-insignificant source of public revenue.

Land sales in the first half of the year also plummeted. This traditionally reliable revenue-earner generated a meager HK$10 billion in income for the government, far below the HK$120 billion it had been estimated the city would make from such sales this financial year.

I would like to remind and alert those in power, as well as the average Hong Kong resident, that we are facing an extremely unpredictable future. With such a huge deficit forecast, not to mention a highly uncertain financial environment, both locally and globally, we have no choice but to consider taking immediate prudent measures, and seeking new sources of revenue.

In terms of finding new incomes, our biggest trading partner remains the Chinese mainland. The mainland accounts for more than half of all our trade. However, between the violent protests in 2019, and the threat of COVID-19, up to now, links have effectively been severed with the mainland. This is a situation we need to urgently address.

A few days ago, the mainland relaxed quarantine measures for those crossing the boundary, accepting incoming Hong Kong visitors under a new “5+3” model. Visitors now have to face the reduced quota of only five days hotel quarantine (down from seven) followed by three in home isolation.

This is a notable improvement on the “14+7” model enforced there during the peak of the COVID-19 scare. I encourage Hong Kong people not to shy away from the mainland, but to take advantage of the relaxed “5+3” measures, and head over to the mainland to reactivate business connections.

Our government officials should lead by example and visit the mainland as soon, and as enthusiastically, as possible. We need to resume business as usual with our mainland counterparts so as not to miss out on any of the latest business developments and trade opportunities there.

When it comes to cutting expenditures, we need to reconsider some of the proposals put forward in the recent Policy Address, especially those grand plans that require substantial funding. We should also reimpose the financial discipline of examining the value-for-money question of the projects. Fiscal red flags ought to be raised over the fact that many of the projects proposed in the Policy Address carry no ultimate price tags.

The SAR government needs to reassure us that not only are all planned future and long-term expenditures necessary, but their cost benefits have been calculated to ensure social and economic benefits for money. It’s incumbent on our leaders to be more forthcoming in this regard.

The author is president of the Wisdom Hong Kong think tank.

The views do not necessarily reflect those of China Daily.