Financial Secretary Paul Chan Mo-po (second left) and Secretary for Financial Services and the Treasury Christopher Hui Ching-yu (second right) listen to questions from the media during a press conference on the 2024-2025 Budget at the Central Government Office on Feb 28, 2024. (CALVIN NG / CHINA DAILY)

As highlighted in the theme of the financial secretary’s new budget plan, the Hong Kong Special Administrative Region government has seen shoring up confidence in both the local asset market and economy as a priority in its work list, and rightly so.

The underperformance of the local stock and property markets — in comparison with some other developed markets — over the past couple of years has generated a tangible negative wealth effect that in turn has suppressed local consumption, causing a further drag on the economic recovery from the aftermath of the monthslong riots in 2019-20 and the COVID-19 pandemic. 

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Hong Kong’s stock market has significantly underperformed when compared with those of the United States and Japan, despite the economies of the Chinese mainland and Hong Kong, registering 5.2 percent and 3.2 percent growth in 2023 respectively, outperforming those of the US

and Japan, with growth rates of 2.5 percent and 1.9 percent respectively. Obviously, the underperformance of Hong Kong’s stock market has more to do with capital flows than actual economic situations.

The geopolitical concerns caused by the Russia-Ukraine conflict and the US’ high interest rates have played a large part in diverting global hot money into the US and Japanese markets. But “financial decoupling” promoted by anti-China US politicians has also hit the mainland and Hong Kong markets. The notion of “ABC” (anything but China) has prevailed in the West’s investment market, which explains the palpable outflows of European and US capital.  

Hong Kong’s efforts to open up new capital sources, including those from the Middle East, as Financial Secretary Paul Chan Mo-po revealed in his new budget plan, are therefore crucial to not only shoring up market sentiment but also maintaining the city’s status as an international financial hub. These efforts, coupled with the slew of measures aimed at enhancing market efficiency and liquidity being considered by the Securities and Futures Commission of Hong Kong and Hong Kong Exchanges and Clearing Ltd, will hopefully boost liquidity in the stock market. And liquidity is the key to creating a positive cycle, or virtuous circle, which is conducive to creating an upward spiral in share prices. 

The financial secretary’s decision to cancel all demand-side management measures for residential properties with immediate effect is long overdue. This will significantly reduce homebuying costs, which, coupled with the Hong Kong Monetary Authority’s simultaneous move to further adjust the countercyclical macroprudential measures for property mortgage loans, is expected to stimulate demand for residential properties, providing support to home prices.

Equally important is the need to strengthen the city’s competitiveness and capacity, which is fundamental to improving its economic prospects and residents’ long-term well-being. The efforts aimed at attracting more companies, capital and talent to the city, particularly those strategic enterprises in the innovation and technology sector, as revealed in the 2024-25 Budget, are likely to contribute to achieving these goals.

The financial secretary has also rightly paid great attention to the further development of the tourism and financial sectors, given their status as pillars of the economy. He pledged to make Hong Kong a premier destination for business and tourism by better utilizing the city’s natural resources as well as organizing more mega events and thematic annual conferences, and proposed to earmark HK$100 million ($12.8 million) to promote the sustainable development of financial services, including green and sustainable finance, fintech, asset and wealth management, headquarters business, and risk management. Measures such as mutual-market access programs that facilitate renminbi cross‑boundary investment and two‑way fund flows to enhance offshore RMB liquidity will also be introduced to consolidate Hong Kong’s status as the world’s premier offshore yuan business hub.

Hong Kong’s narrow economic base has long been blamed for some of the city’s deep-seated social problems, such as wealth/income inequality and stagnant social upward mobility for young people. The special administrative region’s government has promised to diversify the economy. Putting its money where its mouth is, the government is taking concrete steps to promote new industrialization, launching a HK$10 billion New Industrialization Acceleration Scheme this year to promote the development of sectors involving life and health technology, artificial intelligence and data science, advanced manufacturing, and new energy technology.

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That relief measures for both residents and enterprises announced in the new budget have been significantly reduced compared with those in previous budgets over the past few years might have disappointed some people. But the financial secretary is obliged to exercise fiscal discipline, as stipulated in Article 107 of the Basic Law, which requires the government to keep expenditures within the limits of revenues in drawing up its budget and strive to achieve a fiscal balance. With an estimated government deficit of HK$101.6 billion for fiscal year 2023-24 and a further deficit of HK$48.1 billion forecast for 2024-25, the financial chief’s hands are tied. And the much-improved economic situation, compared with that in the past few years, also warrants the practice of stricter frugality.

Nonetheless, the financial chief has introduced some targeted relief measures to help small and medium enterprises tackle their capital-flow problems, tap into new markets and accelerate upgrading and transformation, as well as measures to relieve the economic pressure on individuals who are most in need of help.

All in all, the new budget plan is well-thought-out and comprehensive, catering to both the short-term and longer-term needs of the city’s socioeconomic development while adhering to the principles of exercising fiscal prudence.

The author is a current affairs commentator.

The views do not necessarily reflect those of China Daily.