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Sailing against headwinds

The global financial market was extremely volatile last week. First, the World Health Organisation (WHO) declared the outbreak of the novel coronavirus a global pandemic as the situation across the globe has been getting worse. Then the dispute among major oil-producing countries has triggered the plummet of oil price and deepened investors’ concerns over global economic outlook. Investors started to worry about the real economy, asset prices, capital liquidity and even the possibility of systemic risk in the market. This has triggered a number of central banks to increase money supply and roll out stimulus measures to support the weakening economy.

The declining global economy has put further stress on our local economy. The unemployment rate is expected to get worse, and the catering, retail, accommodation services and construction sectors will remain the hard hit ones. Many companies shortened or even suspended their operation, laid off staff, cut pay or offered unpaid leave to employees. These led to the increase in both the unemployment and underemployment rates, as well as reduction in employees’ income. Different fronts of the labour market are under greater pressure. The latest unemployment rate to be announced this week will hike to its highest level over the last nine years or so.

Expanding public expenditure is one of the ways to support the economy and secure jobs. For instance, there are a number of Governemnt works projects in the pipeline which can provide support to the construction industry, in which high unemployment rate can be seen. In addition, the block allocation of $22.3 billion under the Capital Works Reserve Fund, which was recently approved by the Financial Committee (FC) of the Legislative Council (LegCo), will enable the implementation of some 10 000 small works projects, supporting the livelihood of some 17 000 labourers, professional and technical staffs. The projects can also improve our public facilities for a better living environment.

However, due to the earlier filibustering in the LegCo, 37 work projects which have already obtained the support from the Public Works Subcommittee (PWSC) are still pending the approval of the FC. These projects involve a total cost of around $50.1 billion (in money-of-the-day price) and could provide some 7700 jobs. Many of the works are closely related to our livelihood, such as reallocation of water treatment plant, construction of columbaria, district library, elderly home, community hall; expansion of park and enhancement of playground etc. The approval of these works projects by the FC could relieve the unemployment situation of the industry and boost the demand in other sectors of the economy.

To further support enterprises and safeguard jobs, I announced a series of one-off measures amounting to $120 billion in the Budget. As almost half of our labour force is employed by small and medium enterprises (SMEs), I proposed in the Budget the introduction of a concessionary low-interest loan under the SME Financing Guarantee Scheme (SFGS), in which 100% loan guarantee will be provided by the Government, so as to facilitate the cash-flow of SMEs facing difficulties. The Hong Kong Mortgage Corporation Limited has been working with the banking industry on the relevant preparatory work. The scheme will be discussed by the Panel on Commerce and Industry of the LegCo on Tuesday before submission to FC for funding approval. Subject to approval within this month, the scheme will be formally launched in April.

This 100% loan guarantee product under the SFGS is applicable to SMEs in all sectors, including those mostly affected by the coronavirus outbreak such as retail outlets, travel agents, restaurants, cinemas, karaoke establishments and transport operators, etc. The maximum amount of the loan per enterprise is the total amount of employee wages and rents for six months, or $2 million, whichever is lower. An interest rate of the Prime Rate minus 2.5% per annum (i.e. current interest rate at 2.75%) will be charged. All guarantee fee will be waived. The maximum repayment period of a loan under the guarantee is 36 months, with an optional principal moratorium for the first six months. The overall design of the scheme is to help the SMEs to enhance their cash-flow and maintain their employees, so that they could survive this economic winter and have a better chance of sooner recovery later.

Since last August, the Government has launched four rounds of relief measures with a total amount of over $30 billion. In last month, the $30 billion Anti-epidemic Fund was launched. Another package of relief measures costing $120 billion was proposed in the Budget. We are now working at our best to implement measures with LegCo’s approval. I hope that the Budget will be approved by the LegCo soon so that other relief measures could be put in place quickly to support our economy. We will also continue to keep an eye on the changing local and external economic situation, make assessment and take necessary response.

In addition to fighting against the epidemic, it is also our top priority to maintain the vitality and impetus of the economy, support enterprises and stabilise the employment. This requires the support of the entire community. In particular, the support of the LegCo in expediting the approval of long-pending funding items is important. I call on LegCo members to approve the various funding items as soon as possible to address the urgent needs of the people and facilitie the flow of money into local economic activities.

At the same time, I am leading various financial regulators to monitor the different parts of the financial market through a cross-market, coordinated and real-time approach, particularly to prevent the occurrence of systemic risk. Facing the turbulence of the global financial markets, Hong Kong’s market has been volatile these days with a surge in transaction volume. Nonetheless, our stock, future and derivative markets are still operating orderly. The transaction, clearing service and risk management works provided by Hong Kong Exchanges and Clearing (HKEX) are also proceeding orderly. Short-selling and proprietary trading conducted by hedge funds and major market participants have not shown sign of abnormal activities. The exchange rate of Hong Kong Dollar and interest rate largely remained stable. Banks maintained sufficient liquidity with adequate capital support. We will continue to monitor the market situation, assess potential systemic risk and step up preventive measures if necessary to safeguard Hong Kong’s financial stability.

March 15, 2020