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There is always a rainbow after the rain
External markets have been extremely volatile over the past week. Escalating geopolitical risks have affected the supply of energy and other commodities, triggering a surge in commodity prices such as crude oil futures and even food prices. Investors turned to a highly risk-averse mood. In addition to concerns that the already high inflationary pressure around the world may intensify, which may impose a drag on consumption and the economy and raise the risk of stagflation, they are also worried about the increased uncertainties surrounding the monetary policy stances of European and US central banks. A further tightening of global monetary conditions could put a damper on the momentum of global economic recovery. Recently, the International Monetary Fund indicated that it will lower its forecast for global economic growth this year in April.
The situation in Ukraine has become the focus of the world, which may affect the evolving global geopolitical situation and the development path of the global economy. For Hong Kong, the risks at this stage are manageable. On trade, Ukraine and Russia accounted for only 0.05% and 0.78% of Hong Kong’s exports of goods in 2021 respectively. As for inflation, Hong Kong economy is highly service-oriented and not particularly dependent on energy, and the expenditure weight of energy in Hong Kong’s consumer price index is only about 3%. Even though international energy prices surge, the impact on Hong Kong’s inflation will be relatively mild. However, we will stay highly vigilant and take necessary precautions to any possible impacts on the global financial market and Hong Kong’s financial system, as well as the potential impact on financial security.
Since the geopolitical situation has become tense, external market conditions have turned unclear, with the global and Hong Kong stock markets under pressure. However, the Hong Kong stock market and the Hong Kong dollar market continue to operate in an orderly manner, the exchange rate of Hong Kong dollar has been stable, and capital flows have shown no abnormal signs. The banking system has also remained stable, with the capital adequacy ratio as a buffer indicator staying high at 20%, far exceeding the international minimum standard of 8%. The non-performing loan ratio was at a very low level of 0.88% at the end of last year. All these reflect that banks are well-positioned to cope with challenges. Overall, Hong Kong’s adequate foreign exchange reserves (about US$500 billion) and resilient current account (current account surplus in the last four quarters averaged 10% of GDP) have rendered a strong and firm buffer and resistance to shock for Hong Kong’s financial market.
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The stable growth of the national economy and the positive long-term fundamentals are also the solid support for Hong Kong’s economy to keep its momentum and be confident about the future. The Mainland continues to pursue the direction of “prioritizing stability and seeking progress while maintaining stability” and sets the economic growth target for this year at about 5.5%, higher than the average growth rate of 5.1% in the past two years. The nation’s GDP has exceeded RMB 110 trillion. In spite of its gigantic size, the economy of the Mainland still maintains a stable and solid growth pace, providing a stabilising anchor for global trade and investment. This is why I am still full of confidence in Hong Kong’s economic prospects: Being hard hit by the epidemic, the economy of Hong Kong will very likely see a year-on-year contraction in the first quarter and the unemployment rate is expected to rebound sharply. That said, as long as the epidemic can be put under control as soon as possible, Hong Kong will get out of the slump soon and regain growth momentum.
Since the latest wave of epidemic broke out in early January, it has brought serious disruption to people’s daily lives, as well as the social and economic activities. The SAR Government is currently pushing forward the anti-epidemic work with an all-out effort and directing our resources towards the objective of “reducing infections, reducing severe cases and reducing death”. In this fight against the virus, we are particularly grateful of the guidance and support of the Central Government, as well as the staunch assistance and coordination of different Mainland authorities and local governments. From the swift arrival of the Mainland experts team, the deployment of nucleic acid testing staffs from different places, the setting up of Fire Eye Laboratory and mobile testing vehicles, the provision of rapid testing kits, to the establishment of a mobile cabin hospital within seven days, and the maintenance of normal fresh food supply through water and land means, all these supports have shown the caring of our Country to Hong Kong.
The severe epidemic situation has brought a tremendous pressure on the Hong Kong economy. To support the economy, we first have to contain the epidemic. Fighting against the epidemic is the overriding mission at present. While the SAR Government is curbing the epidemic with an all-out effort, we should also endeavour to support the economy. As Premier Li Keqiang recently pointed out, it is important to help SMEs stay afloat during economic hardship as they are providing large amount of jobs, and their operation are crucial to people’s consumption power, the operation of large-scale enterprises, as well as the overall society and economy. In face of the current suffocating business environment, supporting those sectors in special difficulty could avoid large-scale closure of businesses, which can in turn preserve our economic vitality and support the market sentiment.
SMEs account for 98% of the number of enterprises in Hong Kong, hiring 45% of our labour force in the private sector, and providing a large amount of grassroots jobs. To support our SMEs, I proposed a series of measures in the Budget, including taxes and fees reduction, further relaxation of the eligibility and loan amount of the Special 100% Loan Guarantee product under the SME Financing Guarantee Scheme, as well as the rental enforcement moratorium. By introducing the proposed rental enforcement moratorium, we could provide our SMEs with a temporary breathing space and facilitate the negotiations between landlords and tenants for an adjusted rental arrangement in this exceptional period. Coupled with the relaxed Special 100% Loan Guarantee product, as well as our enhanced capacity in handling the epidemic with the support of the Central Government, I believe we can bring more confidence and hopes to struggling SMEs to tide over this hard time. We are working in full steam on the related legislation work for the rental enforcement moratorium. After widely gauging the views from different sectors, we have proposed various enhancements with a view to striking an appropriate balance between different concerns under the prerequisite of public interests.
I noted that some people have reservation on the proposed rental enforcement moratorium and wish the Government could subsidise the merchants in paying their rents with public money. However, while our society and economy are hardly hit by the epidemic and many grassroots citizens are facing intense pressure in earning a living and paying their rents, would it be acceptable to the overall society to use public money for subsidising the rental income of commercial landlords?
In addition, in face of the external fluctuation and uncertainties, as well as the challenges brought by the local epidemic situation, we must be more prudent in the use of public money and reserve our fiscal strength to handle sudden changes and support market’s confidence. When formulating supporting measures, the Government should in principle consider those which can directly benefit the wide public and SMEs, with a view to supporting people’s livelihoods, the employment, the economy and people’s confidence. This is the key to overall social stability. In fact, it is with this goal in mind that I have decided to re-launch the Consumption Voucher Scheme and relax the arrangement of the Special 100% Loan Guarantee product again.
From anti-epidemic work to economic development, our Country has always been our most solid support. As Xiao Baolong, the director of the Hong Kong and Macao Affairs Office of the State Council pointed out, we have to maintain confidence and with the support of the Central Government and the effort of all of us, any difficulty could be overcome. There is always a rainbow after the rain. Hong Kong will definitely have a bright future.
March 13, 2022
