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Be Pragmatic with an Innovative Mindset
Trends in external interest rates have been influencing capital flows and asset market performance worldwide. The US Federal Reserve (the Fed), with a view to curbing inflation, raised the federal funds rate drastically from a near-zero level to a range of 5.25%-5.5% within 16 months since March 2022. The sustained high interest rates, coupled with factors such as tense geopolitical situation and major elections being held in many places this year, have affected the risk appetite of investment markets, and put asset prices and capital flows in some markets under rather considerable pressure. Although the market has, since the end of last year, been anticipating multiple rate cuts by the Fed this year, no such action has been taken so far.
Remarks by Fed officials in the recent month have once again raised market expectations for a retreat in US interest rates. Currently, investors generally expect that the Fed will lower interest rates at its meetings before the end of this year.
However, the timing and extent of interest rate cuts, their alleviation of pressure on asset markets, and their impact on the local investment sentiment would still need to be carefully assessed amid various uncertainties.
Our local economic data are not short of better performing segments. Take merchandise exports as an example. Hong Kong’s overall exports have recorded year-on-year increases for three consecutive quarters. The 12.2% increase in the first half of this year marked the best first-half since 2022. Within the total, Hong Kong’s exports to Vietnam and Thailand rose by 23.5% and 32.1% respectively, and exports to the United States also increased by 16.6%, indicating continued improvements in export conditions across multiple major markets. This week, the Census and Statistics Department will release trade statistics for July, and it is believed that this growth momentum can sustain.
As for retail sales figures, its decline has gradually narrowed during the second quarter of this year. Although the situation in July did not seem to show notable improvement, there will still be a series of mega events in the rest of the year; the US interest rate cuts may also result in some softening of Hong Kong dollar exchange rate. These will support visitor arrivals and their spending. Meanwhile, the continued increase in employment earnings of residents should also support consumption sentiment. Entering autumn, Hong Kong will be hosting numerous prominent mega events. For those related to finance, there will be “Summit on Start-up Investment and Development in Hong Kong” by the Hong Kong Investment Corporation Limited, as well as the Legacy Summit Fall Edition by the Hong Kong Academy for Wealth Legacy, in September; Hong Kong Fintech Week at end-October; and the Global Financial Leaders’ Investment Summit by the Hong Kong Monetary Authority in November. These mega events will drive international business travellers to visit Hong Kong. If exports sustain a positive performance, coupled with a decline in external interest rates and an improvement in investment sentiment, economic sentiment for the rest of the year should be able to remain steady.
Looking ahead, we need to fully boost our economic momentum and make preparations for medium and long-term development. They include accelerating the development and application of innovation and technology (I&T) to empower traditional industries, as well as enhancing competitiveness through creating more innovative technology applications and new business models, thus bringing in more new customers and consumption. We also need to promote the guiding role of scientific research and innovation in economic development, to further energise Hong Kong's economy. At the same time, we should also focus on widely promoting awareness of I&T at the community level, creating a stronger atmosphere of innovation, and further building a knowledge-based entrepreneurial society. Last week, when I attended the “Innovation and Entrepreneurship Exhibition” organised by the Chinese University of Hong Kong in Shatin, I noticed the enthusiasm of entrepreneurs in using technology to improve people's lives. From the interactions between them and members of the public, I could also feel the real significance of popularising I&T.
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| Attending the CUHK Entrepreneur Day 10th Anniversary Innovation and Entrepreneurship Exhibition last week. |
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| Touring the CUHK Entrepreneur Day 10th Anniversary Innovation and Entrepreneurship Exhibition while attending the event last week. |
We need to strengthen cooperation with sister cities in the Guangdong-Hong Kong-Macao Greater Bay Area and other Mainland cities, as well as enhance our international connections, in order to better leverage Hong Kong's function as an international hub for technology, talent and capital. This week, I will visit Nanjing to attend SmartHK – which seeks to foster Hong Kong-Jiangsu cooperation on high-quality development – on 28 August. The conference will bring together leaders and representatives from the business and industrial, financial services and I&T sectors as well as the cultural and creative industries in Jiangsu and Hong Kong. Together we will explore new areas and models of cooperation, and work to open up new application scenarios and markets with a view to accelerating the development of new quality productive forces. Next month, I will also visit Australia, Spain, the UK and other places, to introduce Hong Kong's business advantages to the local business, financial, and I&T communities, and hope to promote more connections and collaboration with them.
Under the “one country, two systems” principle, Hong Kong enjoys unique institutional advantages, a robust legal system, and a favourable business environment. Our business standards also align with international market rules. These strengths have created greater development space for Hong Kong's diversified and open orientation towards the global market. They have also facilitated the gathering of the world’s advanced technologies, high-end talent, and multiple sources of capital, and reinforced Hong Kong's status as an international financial, trade and shipping centre. To play the “unique card” of Hong Kong, the Government and all sectors of the society must work together, make good use of the unique advantages of “one country, two systems”, be pragmatic, dare to innovate, and accelerate the cultivation of new quality productive forces in accordance with local conditions. The important speech delivered by President Xi Jinping at the symposium commemorating the 120th anniversary of Deng Xiaoping's birth pointed out that we must firmly grasp the primary task of promoting high-quality development and advancing Chinese modernisation. This provides important guidance for us to integrate into the overall development of the country and contribute Hong Kong's strength to Chinese modernisation; and is our inherent mission and responsibility.
August 25, 2024
