Hong Kong finance chief sees ‘haze’ over prospect of British exit from European Union
John Tsang calls uncertainties associated with Britain’s vote on Brexit on June 23 ‘most concerning’, but says immediate impact on city will be minimal
Financial Secretary John Tsang Chun-wah has forecast hazy economic prospects for Hong Kong ahead of Britain’s potential pullout or “Brexit” from the European Union in just over two weeks.
He told the Legislative Council’s financial affairs panel on Monday that the uncertainties associated with Britain’s national vote on June 23 were “most concerning” and might trigger a lengthy negotiation period on exiting trade agreements. But he expected the immediate impact on the city to be minimal because of its relatively smaller economic links with Britain.
Tsang’s comments came after several polls showed the “leave camp” was gaining momentum.
“The uncertain global environment will hit Hong Kong’s economy at any time,” Tsang said.
The finance chief warned that a Brexit vote might bring further risks after the city recorded its slowest first-quarter economic growth in four years.
Tsang promised the government would “stay vigilant” and maintain a stable economy, financial market and local employment.
About 600 British companies are currently operating in Hong Kong, according to Tsang. Trade between the city and Britain reached HK$130 billion last year, according to official data.
Tsang said the government was in the process of assessing the possible impact of Brexit and hadn’t drawn any conclusions. But it was prepared to adjust the extent of relevant regulations if necessary, he added.
Despite their colonial history, Tsang predicted a limited Brexit impact on Hong Kong – at least in the near term.
The UK only accounted for 1.5 per cent of goods exports from Hong Kong and 6.6 per cent of service exports, Tsang said, citing the latest government figures.
Having taken the significant external uncertainties into consideration, Tsang said he would have to look at the city’s first-half GDP figures in August to decide whether to cut his full-year forecast. For now, Tsang is maintaining the 1 to 2 per cent growth estimate he gave in his budget speech in February.
Rather than the direct impact, analysts were more concerned about the disruption the British vote would bring to global markets, which would have significant bearing on an open and small economy such as Hong Kong.
The greatest impact on the city was likely to“stem from the disruption to global growth prospects, and the increasing risk aversion”, according to Duncan Innes-Ker, regional director for Asia at the Economist Intelligence Unit.
At the same time, the recent depreciation of the pound, in part due to the Brexit vote, has prompted an increase in tourism and luxury consumption in Britain, according to media reports. British brands had previously been losing customers to other EU countries as a result of the weak euro over the past year.
“Luxury goods will be relatively cheaper on an international stage,” Jon Copestake, an analyst at the Economist Intelligence Unit, said. He expected some devaluation of both the pound and the euro in the event of a Brexit vote.
But this would be bad news for Hong Kong’s luxury sector, which has been sluggish since China launched its anti-corruption campaign in 2012. “Brexit may extend this trend,” Copestake said, though there were other negative factors in play as well.