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Hong Kong should not expect economic miracles from Chief Executive Tung Chee-hwa's Policy Address on Wednesday, analysts and economists agree, but some short-term steps can be taken to ease the plight of the average citizen.

'We do not expect many concrete measures from the policy speech. It would be wishful thinking,' said Nomura International senior economist Pu Yonghao.

He said the Government would not be able to increase spending much to boost the economy.

On the one hand, it was sitting on a big surplus while on the other it had projected a large deficit because of less revenue.

Under the Basic Law, the budget has to be balanced.

Bank of East Asia senior economist Paul Tang Sai-on said there was not much that could be done in the short-term to stimulate the economy.

'The Government can act to make people feel better before the economy picks up,' Mr Tang said.

'But the purpose of any action should not be measured from the point of view of stimulating the economy out of a recession. I don't think this can be done at all. It is mainly from a social and welfare point of view. We need to help the man in the street get through this difficult period.'

Mr Tang said the middle class was struggling in the present economic climate and had nothing to fall back on, whereas the working class who lived in public housing could turn to the welfare system.

'[The middle class] are saving a lot because their own reserves are the only thing available to them if they lose their jobs,' he said. 'If they are unemployed for more than three months, it would make sense to give back some of the tax they pay as a kind of insurance.

'We have to be creative to help people get back their confidence and to get on the journey to improvement,' he said. 'In the past, we thought the middle class would endure and come out stronger. This time we are not so sure, because there is a lot of restructuring and reallocating, which is really affecting them.'

Mr Tang said a general tax rebate such as the one offered in the 1998 crisis would not jump-start the economy.

Any rebates should be directed at those who needed them most and could be coupled with the creation of temporary jobs.

Paul Chow, tax partner at accounting firm Grant Thornton, doubted whether the Government would offer tax refunds because of the present financial situation. He said Mr Tung should restate and clarify Hong Kong's simple tax system which continued to give it a good competitive edge.

According to Andy Kwan Cheuk-chiu, associate professor in the department of economics at the Chinese University of Hong Kong, unemployment would 'rise very fast' and could hit levels seen in the 1997-98 financial crisis of about 6.5 per cent by next year's second quarter.

The jobless rate is presently 4.9 per cent.

A rise would dampen consumer confidence, which plunged last month in the wake of the terrorist attacks in the United States.

'The near future is not very good and there is only so much the Government can do,' Mr Kwan said. 'In the short-term, Mr Tung can alleviate the situation by expansionary fiscal policy, such as increasing public spending or lowering the tax rate. But these are pain relievers. They will not solve the main problem, which is the US recession.'

Mr Kwan said speeding up infrastructure and public projects would lower the unemployment rate for low-wage workers, but middle and upper management would still suffer as the trend was for firms to downsize.

Independent think-tank Civic Exchange, headed by former legislator Christine Loh Kung-wai, has suggested the Government help people in negative equity by introducing a centralised mortgage instalment insurance scheme in case of redundancy, on a not-for-profit basis. This would assure people help that was at hand if they ran into trouble.

In the longer term, economists and analysts agreed that the Government needed to clarify Hong Kong's role with China.

'We talk a lot about WTO [World Trade Organisation] and how great it is but it will be at least another year before the impact emerges,' Mr Tang said. 'One of the difficult things right now is that the mainland government is still trying to determine schedules about opening up different areas.

'We need to clear up those schedules as quickly as possible so that businesses can tell what is coming. Right now, there is not much help in that area.'

Mr Kwan said China's entry to the WTO offered a good opportunity for Hong Kong to rebound in the medium term.

'Hong Kong will definitely benefit from the Chinese economy becoming the next economic powerhouse,' he said.

'Given that there is a global recession coming up, China will become a safe haven for international capital. Unfortunately, the benefits will not show for three to five years.'

Mr Pu urged the Government to map out a clear economic path forward, saying Hong Kong was still battling with the transition that began 10 years ago of moving its production base to the mainland.

He said Hong Kong would still have to endure the 'painful process' of convergence with the mainland as our labour and property costs remained comparatively high.

Mr Chow expected the Policy Address to include steps to help SAR businesses develop in China, particularly with regard to the WTO expansion moves in the northwestern region.

Mr Kwan said the Government was constrained by the linked exchange-rate system, which limited the internal adjustment of the economy and made recovery a painful process. This would ultimately need to be addressed.

Tung under pressure, page 5



Experts suggest measures Chief Executive Tung Chee-hwa should consider when formulating his Policy Address