Finance chief John Tsang shrugs off Hong Kong's competitiveness rating fall

John Tsang upbeat about city’s fortunes, saying new property taxes that helped drag HK down global competitive list are only temporary

PUBLISHED : Tuesday, 04 June, 2013, 12:00am
UPDATED : Tuesday, 04 June, 2013, 9:57am

Financial Secretary John Tsang Chun-wah has defended the economy in the face of a falling competitiveness rating, saying it is a periodic adjustment rather than a reflection of structural problems.

Heavy property taxes imposed on foreign buyers, which helped drag the city's rating down from first to third on a global list, were not permanent, he said, and had curbed the growth of rents and property prices.

Tsang was responding yesterday to legislators' questions on the rating, contained in a report by the International Institute for Management Development, released last week.

He told a meeting of the Legislative Council financial affairs panel that it was due to cyclical fluctuations.

"We are an open economy subject to the impact brought by a slackening demand overseas," he said. "In fact, the whole of Asia slowed down a great deal."

The economy picked up pace in the first quarter of this year, performing better than others in the region, he said, with an unemployment rate of just 3.5 per cent and a 2 per cent rise, after inflation, in the median household income.

Lawmakers said high rents would continue to affect Hong Kong's competitiveness. Between December and March, the prices of Grade A to C office space rose 5 to 7 per cent, and overall rents 3 per cent.

The Liberal Party's James Tien Pei-chun said inadequate supply of Grade B office space had made things difficult for small- and medium-sized enterprises.

"There are trading companies that cannot find a place to do business. The retail industry has the same problem," Tien said.

Tien and others, including Abraham Razak, representing the real estate and construction sector, again criticised the government for introducing the different extra stamp duties, which cover foreign ownership of properties, saying the move had discouraged foreign investment.

Tsang said those taxes were "extraordinary measures for extraordinary times" while the government was boosting land supply, and would not be permanent.

For the rest of the year, Tsang said the debt problem in the euro zone, uncertainties surrounding the US economy and the depreciation of the Japanese yen would continue to bring fluctuations to the trading sector.

He maintained an earlier forecast that the gross domestic product would increase 1.5 to 3.5 per cent this year.

The report issued by the Swiss research institute said Hong Kong had been overtaken by the United States and Switzerland. It had performed worse in all the four major areas studied: economic performance, government efficiency, business efficiency, and infrastructure. Singapore also fell - from fourth to fifth.

Lawmakers also asked why the mortgage-to-income ratio, an indicator of the affordability of homes, had climbed to a new high of 56 per cent in the first quarter since 1999, while home prices had slipped 0.7 per cent from March to April.

Officials said the increase was due to price rises in January until measures introduced at the end of February cooled the market.