New slump may hit next year: Tsang
A renewed economic downturn may hit Hong Kong in the middle of next year as the global financial crisis continues to make itself felt, Chief Executive Donald Tsang Yam-kuen warned yesterday in Beijing.
The government's large reserve fund would provide the strong base needed to tackle the next economic decline, and Hongkongers would not see tax increases, he told an audience of more than 200 at the Chinese Academy of Governance, a training centre for government officials.
'I am rather pessimistic,' he said. 'A second trough may well emerge in the middle of next year. But we have what we need to deal with the coming situation. The aim is to work out some way to maintain people's confidence, without raising tax rates.'
The government's HK$500 billion in reserves - one of the highest levels among Asian economies - could be relied on for two years, he said.
Tsang's remarks came a day after he reported to President Hu Jintao and Premier Wen Jiabao that Hong Kong's economy was reviving. The city had just recorded its first year-on-year growth in exports since the global financial crisis. Exports last month surpassed HK$240.7 billion - up 1.3 per cent from November last year. The city's GDP year-on-year contraction eased from 7.8 per cent in the first quarter to 3.6 per cent in the second and 2.4 per cent in the third.
Tsang's comments echoed a warning in September by Joseph Yam Chi-kwong, outgoing chief of the Hong Kong Monetary Authority, who said he was concerned that the V-shaped rebound in the financial and property markets would be an illusion.
The effects of last year's global financial meltdown were much more extensive than the Asian financial crisis of 1998, and Hong Kong as a small economy must guard itself against external threats, Tsang said. 'To protect yourself, you must have money in your pocket. Without money, others will bully you,' he said.
'Hong Kong must develop industries that can help the city - industries that mainland cities can't provide. These include high-end services, professional services and those sectors that rely on an extensive international network.'
Reacting to Tsang's comments, Stephen Cheung Yan-leung, dean of the business school at Baptist University, said he was cautious but not especially pessimistic about the city's economy next year. 'I am quite sure that there will be a rebound since the base of last year was so low that the city was haunted by the financial tsunami,' he said. The Hang Seng Index stood at around 22,000 points - still 30 per cent below its peak before the meltdown, he said.
Dr Raymond So Wai-man, an associate professor with Chinese University's finance department, agreed that the city's economy was built on flimsy foundations. 'With the almost zero interest rate in the US and Europe, people just pour money into the Asian markets. Once the interest rate goes up to normal, this hot money will go,' he said.
Tsang said the mainland economy had been hit by a drop in international exports, and it should revive markets by boosting internal demand. Hong Kong's way out would be to improve the quality of its services and strengthen the training of talented people - as the city has an edge in the professional service sectors. The further growth of the city's service sectors would be complemented by developments in Guangdong, home to many Hong Kong-owned factories because of its abundant land and manpower, Tsang said.
'But the integration is just at a starting stage: the Pearl River Delta's municipalities should co-operate further to increase the power of the regional economy.' Tsang said he hoped to explore ways to improve regional integration during his tenure, which runs until 2012.
Professors Cheung and So urged Tsang to step up planning for the six new economic pillars - education, medicine, environmental industries, innovative science, cultural development and food safety and product testing - which he announced in this year's policy address.
Hong Kong could contribute to the central government's drafting of its 12th five-year plan on national economic development. In particular, as an international financial centre, the city could help as a testing ground for the internationalisation of the yuan, he said.
'Under the framework of 'one country, two systems', we hope to make use of our advantages in the process of regionalising and internationalising the renminbi ... Hong Kong has all along been participating in the state's work of paving the way for the internationalisation of the renminbi.' He cited the qualified foreign institutional investor programme, Beijing's qualified domestic institutional investor scheme and the yuan trade settlement initiative, in which Hong Kong is involved.
As for last year's global financial collapse, Tsang said that Asian financial markets had relatively healthy regulatory systems compared with those of the United States and Europe, which crumbled in the crisis. He appealed for stronger collaboration among Asian financial markets.
The speech and Tsang's brief tour of the academy marked the end of his three-day trip to Beijing, during which he paid his annual duty visit to state leaders.
He returned to Hong Kong yesterday.