Hong Kong’s economic health will slow down under ‘dark cloud’ of US-China trade war, says financial chief Paul Chan

Chan said direct impact of trade war on Hong Kong was small, but warned of knock-on effects if pressure was put on jobs and financial markets over the border in mainland China

PUBLISHED : Saturday, 14 July, 2018, 10:44am
UPDATED : Saturday, 14 July, 2018, 11:19pm

Hong Kong’s economic health will slow down in the second half of the year under the “dark cloud” of a deteriorating US-China trade war, a senior government official warned on Saturday.

Financial Secretary Paul Chan Mo-po said “the shadow of the trade war is so wide” Hong Kong would not escape unscathed.

He expected the trade spat would linger, creating a challenge for the city’s nascent economic recovery, that recorded its strongest first-quarter performance – 4.7 per cent growth – in almost a decade.

“The dark cloud covers a wide area and has affected invested sentiment,” Chan said on a radio show. “The trade war is worrying because it is affecting our biggest trade partner, China.”

US President Donald Trump has hailed two waves of tariffs on a total of US$250 billion worth of Chinese goods in the past week.

The first wave was a 25 per cent levy on US$34 billion worth of Chinese goods – largely materials such as steel and aluminium – which took effect on July 6. China hit back with levies on a similar scale of American goods.

Which Chinese cities will be hit hardest by Donald Trump’s trade fury?

On Tuesday, the US proposed 10 per cent tariffs on another US$200 billion worth of Chinese goods, including consumer products such as clothing and shoes, air conditioners and refrigerators, and food, pending a hearing in Congress in late August.

Chan said the direct impact on Hong Kong in the near future was small, with China’s exports to the US via the city, accounting for 0.3 per cent of the city’s gross domestic product.

“But Hong Kong is affected more indirectly,” Chan said. “The trade war will put pressure on jobs across the border and affect [China’s] GDP growth and financial markets, which may spill over into Hong Kong.”

Trade and logistics industries, one of the city’s economic pillars, were vulnerable to risks, he said. According to the government statistics, these industries employ about 800,000 people, or about 20 per cent of the city’s working population.

Hong Kong companies caught in crossfire of US-China trade war

As the trade war bit, Hong Kong banks could tighten lending, Chan warned, which could stymie small and medium-sized enterprises’ funding needs.

The government would put in place funds soon to ease their finance burden. The Export Credit Insurance Corporation also helped with extra coverage for exporters, he added.

But Chan said the government would keep its target economic growth of 3 to 4 per cent for this year. Last year, it grew at 3.8 per cent.

Chan called the punitive tariffs protectionism and said the US was bullying its trade partners, which include not only China but the European Union and Canada.

“We demand the US return to the arbitration arrangements of the World Trade Organisation for any trade disputes,” he said.

Meanwhile, Chan supported Chief Executive Carrie Lam Cheng Yuet-ngor’s recent calls to resolve the housing crisis by reclaiming land outside Victoria Harbour.

A government consultation in 2011, when Lam was secretary for development, mapped out five near-shore locations – Lung Kwu Tan in Tuen Mun, Ma Liu Shui in Sha Tin, Siu Ho Wan and Sunny Bay on Lantau Island, and Tsing Yi Southwest – where land could be reclaimed.

Lam’s vocal preference jumped the gun on the government’s land supply task force, which is in the process of gauging public views on land supply options.

“Reclamation is inevitably needed outside the harbour,” Chan said. “The government is determined to resolve the land supply issue.”

He stopped short of commenting on the government’s latest thinking on housing measures as no matter what he said would “be read as a signal to encourage more people to buy homes”.

As the median price of homes rose for the 26th consecutive month in June, homebuyers are increasingly looking at lived-in and subsidised properties as alternatives.