Blog
To save our economic vitality
The first quarter of 2020 will come to the end soon. The past two months or so has been a testing time for all of us. Since the outbreak of the novel coronavirus in late January, the whole community has been fully engaged in tackling the epidemic. Economic activities and people's daily lives were disrupted. We have continued to adjust our measures in fighting against the virus taking into account the development of the outbreak. While the situation were becoming stable, the latest round of return of overseas Hong Kong people has brought a new wave of challenge to our anti-virus work. Nonetheless, under the strategy of early discovery, identification, containment and treatment, and with the whole community working hard together, I am confident that we could eventually bring the epidemic under control.
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| Points to note for home confinees |
The epidemic has been spreading across the globe, putting the worldwide economy under great pressure. Many international organisations and economists are pessimistic over the economic outlook and have warned the risk of global recession this year. To maintain the confidence of the market, many countries reduced interest rates and increased money supply, of which the magnitude is the greatest since the 2008 global financial crisis. At the same time, many governments have launched large-scale fiscal measures to address economic downturn. All these have manifested how worse the situation is.
The Hong Kong Monetary Authority (HKMA) adjusted downward the Base Rate to 0.86 per cent last Monday (March 16) and reduced the countercyclical capital buffer (CCyB) from 2 per cent to 1 per cent, which will release some $500 billion in capital and provide banks with a larger buffer to support the local economy. HKMA has also made clear that the rate of CCyB could be lowered to zero if the economy further deteriorated.
In fact, the current economic situation of Hong Kong is even worse than that of 2003 during the SARS epidemic. Many small and medium enterprises (SMEs) of different sectors are facing a free-fall-like decline in business and the risk of capital chain rupture, and they offer unpaid leave to employees, cut salary or even lay them off. I call on the banking sector to provide full support to SME borrowers under this difficult time. This includes handling enterprises' loan applications with a supportive, accommodating and flexible attitude at full speed, and providing the option of loan restructuring for those in need, so as to assist them in overcoming the challenges. I also call on property owners again to offer rent concessions to tide commercial tenants over through the hard time.
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| Points to note for household members |
I proposed in the Budget this year a new concessionary low-interest loan with 100 per cent Government guarantee to provide timely assistance to enterprises in need. The scheme was approved by the Finance Committee of the Legislative Council Last Friday. I have urged the Hong Kong Mortgage Corporation Limited to speed up the preparation works with the banking sector, with a view to launching the scheme within April for application and help SMEs to pay rent and wages.
Under the new scheme, the Government will provide a total loan guarantee commitment of $20 billion. The application requirements and procedures will be simplified. Banks only need to check mainly the eligibility of loan applicants when processing the applications. As all default risks will be borne by the Government with the provision of a 100 per cent guarantee, I believe it will greatly enhance the chances for enterprises in securing loans. With a low interest rate fixed at Prime Rate minus 2.5 per cent per annum, guarantee fees waived and an option for a principal moratorium for the first six months, the new scheme will for sure help alleviate the burden of SMEs.
Hong Kong's economy is in deep water and figures are showing that the situation is getting worse. Since February 2019, both the value and volume of total retail sales have been decreasing continuously for 12 months. The decrease in retail sales value ranged from 18 to 24 per cent over the last 6 months, and the decline in sales volume exceeded 20 per cent in the same period. The latest figures will be announced by the end of this month and they will hardly be getting better under the current circumstances.
The unemployment rate announced last week increased by 0.3 percentage point to 3.7 per cent for the period of December 2019 to February 2020, which is the highest over the past nine plus years. In the same period, the number of unemployed persons increased by around 12 000 to more than 13 000. The unemployment rate and underemployment rate of the consumption- and tourism-related sectors combined have surged to 6.1 per cent and 2.5 per cent respectively, both the highest in about a decade. The unemployment rate of the construction sector also hiked to 6.8 per cent. Further rise in the rates are expected as the latest development of the epidemic is not yet fully reflected.
Hong Kong's economy is under a great stress and the future is full of uncertainty. We have to keep up our work of supporting enterprises and safeguarding jobs to preserve the vitality of the local economy. At the same time, we have to set aside our differences and avoid further self-harming. In the 2020 index of Economic Freedom recently published by the Heritage Foundation from the US, Hong Kong was ranked number two, losing the title of the world's freest economy we held for 25 successive years. In fact, Hong Kong still attained high scores of over 90 in 7 out of the 12 components adopted for measuring economic freedom. However, due to the security issues arising from the social unrest in the latter half of 2019, Hong Kong's score in "Investment Freedom" declined significantly, which in turn pressed down the overall score.
We need to treasure and safeguard the fundamental strengths of Hong Kong, and provide a facilitative environment for speedy economic recovery. At the same time, we need to keep up with our efforts in fighting against the virus and aim to restoring daily and economic activities as soon as practicable, so that we can maintain investor's confidence in Hong Kong's future.
March 22, 2020
