Small firms have no special claim to budget bounty
First of all, lending support to enterprises. I am deeply concerned about the possible hardship small and medium-sized enterprises may suffer in times of economic downturn.
John o' the Whiskers, Budget speech
Ishall take his word for it that this matter of hard times for SMEs is worth addressing first. It may as well be. The rest of the speech was just a matter of handouts and yet more handouts, most of them small and none of them new or showing much sign of original thought.
The SME handout is different, not because it is new or original (it is not), but because it is big. It revives an SME loan guarantee scheme from 2008 to 2011, gives borrowers more advantageous terms than before and is to be backed by HK$100 billion in loan guarantees.
Let me repeat the number - that's HK$100,000,000,000, a total of 11 zeros, count them. It's the equivalent of more than HK$42,000 from each and every household in Hong Kong.
Look at it another way. Elsewhere in the budget our financial secretary graciously raised the dependent brother/sister allowance, which will benefit an estimated 25,000 taxpayers and cost the government HK$10 million a year.
This amounts to one hundred thousandth, 0.001 per cent, of what his loan guarantees. If the rest of his speech were similarly proportioned, he would still be talking now, right until some time next month in fact.
To this observation the bewhiskered one will naturally point out that his SME support takes the form of loan guarantees, not a straight expenditure. The final cost, taking into account anticipated defaults, will be about HK$11 billion, he says.
This is still a very hefty sum, more than a thousand times as big as the brother/sister allowance measure. It also seems to take into account a default rate that, if incurred by a commercial bank, would soon have the Hong Kong Monetary Authority pulling that bank's licence.
But I can understand why the scheme must anticipate a high default rate. It will not be administered directly by civil servants. They cannot do it. The job will be done by the credit officers of the banks making the loans.
So here is the question. If this credit officer has both a good risk on his books and a bad risk, which risk will be assigned a government guarantee and which will the bank keep as its own risk?
Yes, I see the wheels turning. Unfortunately, I don't think they have turned in Financial Secretary John Tsang Chun-wah's head. The government response to this quibble with the guarantee scheme has always been that there is no way that Hong Kong's credit officers would betray the trust put in them by the Hong Kong government.
No way, you understand. It just wouldn't happen. Uh-huh. Well, I know what I would do if I were a bank credit officer and I know what my direct boss would expect me to do. High as the anticipated default rate may be, I suggest it be made a good deal higher, particularly if we face times as hard as John o' the Whiskers foresees.
Mind you, I wouldn't stake much money on that foresight. He is suffering from a case of the Europe jitters, a common anxiety among bureaucrats at present.
For my part, I cannot understand why the European financial tsunami has been so long reaching our shores. It has been ballyhooed for more than two years now but hardly a ripple do I yet see here. Perhaps we are looking at chronic rather than acute financial trouble in Europe. Methinks our financial secretary has been over-gloomy in his budget.
I also do not share his view that SMEs are more important to Hong Kong than normal measures of their numbers or size would make them. There are some things only a big enterprise can do, and other things suited to a one-man operation.
For instance, I wouldn't care to bank with an SME bank or fly an SME airline. Big as it may be, Cathay Pacific is just the right size for its business. Equally I wouldn't go to a company the size of Cathay to have my drains cleaned. A one-plumber shop will do the job just fine.
Let every business be just the right size for the industry it's in, I say. Unfortunately, in the financial-secretary business it takes only one man to prescribe a handout bandage on every joint.