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Tuesday, January 13, 2015, 09:10

HK economic outlook remains uncertain

By Oswald Chan in Hong Kong

The current economic backdrop when Chief Executive (CE) Leung Chun-ying announces the 2015 Policy Address this week is a highly uncertain one.

Hong Kong is facing a possible United States interest hike in the middle of the year and a strong US dollar, coupled with the city’s skyrocketing property prices, anemic exports and weak retail sales due to faltering mainland tourist spending.

The economy suffered from feeble export and retail sales last year as the government slashed 2014 economic growth forecasts from a high of 3 percent to 2.2 percent in November last year.

This year, economists from financial institutions and universities told China Daily that in the coming Policy Address the government should unveil new measures addressing the city’s bottlenecks in labor, land and infrastructure facilities.

In their opinion, as a market-based economy, Hong Kong should create a business environment conducive to overall economic growth, rather than just pick a few specific industry winners to promote.

“The Hong Kong government must enhance more residential and commercial land supply so commercial enterprises can expand their businesses,” Hong Kong Baptist University Finance and Decision Science Department’s Associate Professor Billy Mak Sui-choi said.

“Businesses in Hong Kong are grappling with high rentals and inadequate office supply that constrains business expansion.”

Simon Lee Siu-po, senior lecturer at Chinese University’s School of Accountancy, agrees with Mak. “The Hong Kong government must undertake long-term planning in labor and land supply. When there is sufficient commercial land supply, the government could consider building more private universities and private hospitals to promote the city as an education and medical services hub,” Lee said.

“This is because Hong Kong has already cultivated talents in the fields of education and medical services. Once there is enough land for building more private universities and private hospitals, the city could develop the education and medical services industry to promote economic growth,” he added.

The CE, in his 2014 Policy Address, said the government would continue fostering economic development by capitalizing on the strength of the four pillar industries (financial services, trade and logistics, tourism, as well as professional services). It will also explore new niches in new industries (maritime services, legal and resolution services, creative industries, as well as innovation and technology industries). The government will also examine developing the potential of a “bridgehead economy” on Lantau Island.

More infrastructure projects are the second prescription. “The government should keep a close watch on the pace of the construction of Hong Kong-Zhuhai-Macao Bridge this year. If there are construction delays again, cost overruns may happen,” said Rocky Tung, an economist at French trade credit insurer Coface.

“Ensuring infrastructure projects are completed on time is crucial to fostering more economic competitiveness in Hong Kong. Under the backdrop of the ‘One Belt and One Road’ (Silk Road Economic Belt and 21st Century Maritime Silk Road) planned by the central government, Hong Kong could be in a position to gain if its infrastructure networks are ready.” Tung said.

Against anticipated weak export performance in 2015 due to the predicted strengthening of the US dollar, the government should also announce further measures to help local small and medium-sized enterprises (SMEs).

“The government could consider further measures to boost the quota of trade credit insurance that could improve cash-flow for local SMEs,” Baptist University’s Mak said. “Once cash-flow has been assured, local SMEs would be in a better position to compete with Southeast Asian exporters.”

Investment banks are generally cautious that Hong Kong can achieve economic growth between the thresholds of 2 to 2.6 percent in 2015.

HSBC’s Asia Pacific (Strategy and Economics) advisor George S.K. Leung predicts Hong Kong will only be able to maintain economic growth of 2 percent in 2015. This will be fuelled largely by infrastructure spending, due to faltering exports and decreasing mainland tourist arrivals reducing retail sales.

“We see three themes surrounding Hong Kong economic development this year: slower consumption in this year’s first half and better trade in the second half; likely abundant liquidity in the first half; and heightened protest activities that make governance difficult,” Citibank analyst Adrienne Liu cautioned.
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