To rebuild Hong Kong’s economy for the long term, invest in construction

The policies issued in the latest Hong Kong budget to support enterprises and safeguard jobs may prove useful in boosting the economy in the short run, but they are not sustainable in the long term.

Low-interest loans are a relief measure to help entrepreneurs facing financial difficulties and give companies desperately needed capital. The 2020-21 budget also includes a series of expansionary policies. The reduction in rates for profits and non-domestic properties will bring a decrease in net taxes. As the cost of production of firms decreases, this may enable struggling firms to survive.

Some industries have benefited from the coronavirus outbreak. The takeaway industry has flourished, while online shopping platforms have also recorded unprecedented sales numbers. Together with the support of the government, these new rising industries may bring more job opportunities, stabilising the unemployment rate.

For now, these policies would help us breathe life into our gasping economy. However, they are not sustainable in the long run. The rate reductions and fee waivers are only applicable to the 2020-2021 financial year. Long-run aggregate supply and potential output will remain unchanged. How much time it will take for Hong Kong to return to normal is still uncertain.

I urge the government to invest in construction: to build new transport facilities, technology research centres, schools, and hospitals. In the short run, these projects will increase government expenditure and the aggregate demand in the economy, boosting real output. New job opportunities will also be created, such as for construction workers and building surveyors.

Investing in fundamental construction raises future production capacity. New transport facilities would boost the logistics industry. More technological research centres would improve production skills and productivity, by facilitating augmented reality and drone technology. Investing in new schools and hospitals would improve the skills and health of workers, training new elites for a range of different industries.

With the right policies and strategies, we could rebuild our society in no time.

Harold Fung, Jardine’s Lookout