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The Government today (Friday) announced seven measures to counter economic difficulties.

Expressing concern on the recent acute downturn of economic performance as reflected in the first quarter figures, the Chief Executive said,

"The Asian financial turmoil has done great damage to many countries in Asia. We in Hong Kong have also been badly affected. In any case, years of high property prices, high inflation rates, negative interest rates and rising wages had created a bubble economy which needed to be corrected if we are to remain competitive. The Asian financial turmoil accelerated the pace of correction. Indeed, we are now in the depth of a major economic adjustment, the result of which will be painful.

"When the Financial Secretary presented his 1998 Budget, the difficulties we will face in 1998 were already taken into account. Substantial tax reduction and increases in investment and expenditure were made. These were designed, among other purposes, to provide necessary stimulus to our economy as well as relieving the pain associated with economic adjustment. In time we will see the full effect of these measures.

"While the adjustment process is painful, I firmly believe we, as a community, can take the pain of adjustment. We have come to our leading economic position because we have suffered pain before. We can stand the test.

"In the meantime, I am pleased that after very careful consideration, we are able to announce a series of measures which in the short term will ease the credit crunch and will stimulate consumption.

"I urge the entire community not to let over-pessimism lead us to despair, thus putting downward pressures on our economy. One of the strengths of our free market economy is our capacity to adjust quickly and efficiently upward or downward. This time, we have adjusted quickly downward and I know we will regain our competitiveness quickly also.

"Furthermore, Hong Kong's economic outlook for the medium to longer term remains good. This is underpinned in particular by sustained high economic growth and further reform and opening up in the Mainland will provide ample opportunities for Hong Kong. Additionally, our past prudent financial management has produced very strong fiscal reserve which will provide a solid base for a strong recovery in a not too distant future."

Seven measures to relieve the short-term difficulties were announced by the Financial Secretary today.

The measures are targeted to ease the credit crunch faced by the business community and to boost in-bound tourism. The combined effect of all the measures will improve liquidity of the money market and will lead to higher tourism earnings and increased domestic consumption.

The seven measures are set out below -

For improved liquidity and a more efficient financial system

The Hong Kong Mortgage Corporation will shortly announce new facilities which will streamline the purchase programme for residential mortgages and would provide banks with greater certainty on the amount of loans they can sell to the HKMC within a specified period. This should provide banks with greater assurance about the availability of liquidity and help them to plan their new loan business more effectively.

In order to improve the liquidity of the banking system, the HKMA is working closely with the major market participants to consider ways to kick-start the development of the HK dollar repo market. The banking system is sitting on a considerable amount of liquid assets: collectively they are holding HK$138 billion worth of Exchange Fund Bills/Notes and other LAF eligible paper. The development of an active HK$ repo market, making fuller use of these liquid assets, will facilitate interbank lending, particularly at the longer end, as concerns over counterparty credit risks can effectively be alleviated with the security of high quality collateral.

For the property market

We have decided to extend the pre-sale period of uncompleted flats from the present 15 months to 20 months before the estimated date of completion of the development project. We will also, with immediate effect, suspend the following measures -

prohibiting resale of uncompleted flats before assignment;

limiting flat sale to companies to the last 15% of each batch of flats for pre-sale;

requiring developers to put all flats for pre-sale onto the market within six months of the date of consent given;

requiring developers to put onto the market not less than 20% of flats approved for pre-sale for each batch of flats for pre-sale

For tourism

We will simplify the entry requirements to facilitate Taiwan travellers to visit Hong Kong. With effect from June 1 1998, Taiwan residents holding a valid "Mainland Travel Permit for Taiwan Residents" ("Tai Bao Cheng") and a valid entry/exit endorsement for the Mainland may stay here for 7 days when they pass through Hong Kong in transit to or from the Mainland. There is no need for them to apply separately to the Immigration Department for a Hong Kong Entry Permit.

With effect from June 5, the Immigration Department will provide a fast track service for Taiwan residents applying for multiple journey Hong Kong Entry Permits valid for three years. The normal processing time will be reduced from five working days to two.

With effect from July, we will expand by 30% the quota for Mainland residents to visit Hong Kong for sight-seeing under the "Hong Kong Travel" Group Tour Scheme. This will increase the daily quota from 1,142 to 1,500.

We have decided to proceed with the construction of the cable-car project at Ngong Ping as a tourist attraction by commercial interests. We welcome a preliminary proposal by Mass Transit Railway Corporation and have tasked it to take the lead in developing the proposal further as well as to mastermind the way forward. All the necessary statutory procedures and requirements will be complied with in bringing this project to fruition.

Announcing the above measures at a press conference, the Financial Secretary said, "With the Government taking the lead, we will continue to work hard with the Legislature, the news media, the business community and our local community to turn our economy around for the better. This must be a collective effort. My colleagues in the civil service and statutory bodies will do our best."

"With the public sector expenditure constituting less than 20% of the total GDP, the revival of the economy will clearly have to be private sector-led. But the Government stands ready to support any community-wide effort to ride out the storm," the Financial Secretary said.

Besides, the Financial Secretary was confident that the biggest ever tax concession package he announced earlier would bring real relief to both the business community and the public at large, and it would bear fruit in the long run.

Upon announcement of the above counter-measures, the Financial Secretary met with major political parties and business leaders to exchange views with them on Hong Kong's current economic situation.

End/ Friday, May 29, 1998

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