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Our country's new development phase
The Hong Kong economy has shown initial signs of bottoming out after five consecutive quarters of negative growth. Having recorded contractions of about 9% respectively in the first two quarters of this year, the rate of decline narrowed to 3.4% in the third quarter. On a quarter-to-quarter basis, GDP rose by 3% in the third quarter, ending the five consecutive quarters of decline. Benefiting from the notable growth in the Mainland's exports, Hong Kong's exports turned to an increase. Private consumption saw a narrowed decline. These, coupled with the low base of comparison last year, contributed to some improvement in GDP in the third quarter. In fact, people flows on streets have increased and even restaurants and shopping malls have seen more customers alongside the further relaxation of some of the social distancing measures for epidemic prevention.
However, for citizens and wage earners, job and income after all constitute the most personal feelings. Since the beginning of this year, the unemployment rate has risen from about 3% to 6.4%, and the underemployment rate from 1% to 3.8%, with industries directly affected by the epidemic under even greater pressure. Therefore, even though the overall economy shows improvement, the situation faced by ordinary wage earners is still difficult.
We all hope that the overall economy will continue to improve so that the job market can regain some strength. However, the fluid international political environment coupled with the unpredictable and austere global pandemic are taking heavy tolls on many economies. According to the World Economic Outlook report issued by the International Monetary Fund in October, all major economies, except China, have shown contractions of varying degrees this year. The global economy is forecast to shrink by 4.4%, and the road to recovery is expected to be long and difficult. Although the global economy will improve next year with a forecast growth of 5.2%, the momentum will gradually slow down thereafter, and the growth rate will ease back to 3.5% in the medium term. However, there are still huge uncertainties surrounding this forecast, which is predicated on the assumption that countries can effectively control the pandemic by the end of 2022. In addition to the evolving pandemic, the prevailing financial market valuation is too high and contrary to the performance of the real economy. The potential fluctuations and the resulting shifts in capital flows down the road will weigh on the global economy, with possibly greater shocks to the emerging economies.
In Mainland, the Fifth Plenary Session of the Central Committee just announced the proposals for the "14th Five-Year Plan" (“the Plan”) and long-term goals for 2035, outlining the general direction of future social and economic development. In respect of economic development, the Plan proposes to achieve high-quality, sustainable and healthy development, fully unleash the growth potential, build a stronger domestic market, and enhance the economic structure, as well as to upgrade the industrial base and modernise the industrial chains by upholding the central role of innovation with the support of technological self-reliance. In addition, reform and opening up have to be pursued at a higher level.
The above proposals clearly illustrate that our country is entering a new phase of development, and give us a deeper understanding of the "new development pattern with the domestic market as the mainstay while letting internal and external markets boost each other”. With the country's transitioning from a stage of rapid growth to one of high-quality development, the driving force of economic development will accelerate its shifting from external trade to domestic demand. To enhance domestic demand as a driver of development, there is a need to promote domestic demand expansion and consumption upgrades. Therefore, it is necessary to use innovation and technology as the leverage to improve the quality of domestic demand, enhance the industrial chains and supply chains, build a relatively independent and complete high-quality industrial system, and reduce the reliance on foreign technology.
The total retail sales of consumer goods in China amounted to nearly US$6 trillion in 2019, equivalent to 95% of that of the US. The scale of the consumer market is expected to surpass that of the US this year. However, China's per capita GDP is about US$10,000, still much lower than that of developed economies. As long as the Mainland economy continues to grow and people's income to increase generally, there will still be a lot of room for growth in the Mainland's consumption-related industries. In the future, Hong Kong businesses can actively participate in the domestic sales market by promoting high-quality products for domestic sales, expanding import distribution business, etc.
Owing to the fluid international environment, the industrial chains and supply chains may gradually shift from international division of labour to domestic division of labour, thereby providing catalyst for the domestic technology ecosystem to grow strong and be self-reliant. In recent years, the HKSAR Government has strengthened cooperation with Shenzhen in innovation and technology. Hong Kong has top-notch capabilities in basic scientific research, with five universities among the world's top 100, and enjoy competitive advantages in fields like biomedicine and artificial intelligence. Hong Kong also has an excellent innovation and technology support system and an increasingly well-established innovation and technology ecosystem, including an cosmopolitan social environment, intellectual property protection, research institutions and talents from all over the world, and first-class financial services etc.. This allows us to play a unique and important role in developing the Greater Bay Area into an international innovation and technology centre.
During the "14th Five-Year Plan" period, our country will implement measures for wider, broader and higher-level opening up. Hong Kong has a global business network, and can provide professional, business and high value-added services that are in line with international standards, thus playing a more active role in the promotion of domestic and international dual circulation.
Finance is an important support for the real economy. Comprehensive and excellent financial services are very important for the transition to high-quality economic development. Hong Kong has always been the offshore financing centre for Mainland enterprises and an important conduit for international capital to enter the Mainland market. Capital markets of Hong Kong and the Mainland can complement and promote each other. Hong Kong is an offshore Renminbi (RMB) business hub with the largest offshore pool of RMB liquidity, and handles more than 70% of the global RMB trade settlement. As the internationalisation of the RMB continues, Hong Kong will have great potential for development in RMB investment and risk management products.
Furthermore, Hong Kong continues to play an important function and serve as a platform for the two important national development strategies of the "Belt and Road" initiative and the development of the Guangdong-Hong Kong-Macao Greater Bay Area. The Greater Bay Area is also a key route for Hong Kong to participate in the country's internal circulation. Therefore, Hong Kong must seize this major opportunity to assist the country's development while creating broader room for our own development.
November 1, 2020
