****************************************
Following is the translation of the message delivered by the Chief Executive, Mr Tung Chee Hwa, to Hong Kong citizens concerning measures to facilitate economic adjustments. The message was broadcast via electronic media this (Monday) evening:
Riding out the storm together:
Boosting confidence in Hong Kong.
Dear Hong Kong citizens,
One more week from now, we will be celebrating the first anniversary of Hong Kong's reunification with our motherland and the establishment of the Hong Kong Special Administrative Region. On July 1st 1997, we entered a new era with a strong national pride under the principles of "one country, two systems", "Hong Kong people running Hong Kong" and a high degree of autonomy.
While we were overjoyed at the opening of a new chapter in the history of Hong Kong, a financial turmoil more devastating than anything we had known before broke out in Asia. The turmoil has not only jeopardized the economic situation of the entire region, but has also brought formidable challenges to the economy of Hong Kong. The effects of the turmoil are more serious and far-reaching than we have anticipated.
Shaken by what has happened elsewhere in the region, Hong Kong has experienced high bank interest rates, restrained cash supply as well as rapid downward adjustments in the stock and property markets, resulting in a negative wealth effect. In addition, the depreciation of the neighbouring currencies has had a severe direct impact on our tourist industry. The shrinking of the tourist industry and our people's wealth have in turn dealt a direct blow at our service industry, rapidly pushing up unemployment and bringing down the level of our GDP.
All Hong Kong assets have been devalued and shrunk to a large extent within a few months. In the first quarter of this year, a negative economic growth at 2 per cent of GDP was recorded. The rising unemployment rate at the end of May, the continually weak economy in Japan and the drastic devaluation of the Yen have added more uncertainties to the already bleak economic outlook for Hong Kong. Every sign points to the fact that negative economic growth will likely continue in the second quarter. The unemployment rate will probably continue to rise and the economic situation for the second half of the year is hardly optimistic.
In my view, all of these negative economic phenomena, which surfaced within such a short span of time, can also be attributed to the internal factors in our own economy. The high land prices, high wages and high inflation that were recorded in the past few years have led to bubble economy. We need to make some adjustments to the way the economy is run. One of the Asian financial turmoil's impact on Hong Kong is that it has quickened the pace of, and added momentum to our economic adjustments. The crisis has thus been a catalyst for a plunge in the stock market, a drastic drop in property prices, a shortage in cash supply, reduced consumption power and slackened investment.
The government of the Special Administrative Region has to be a government accountable to its people. Ever since the outbreak of the Asian financial turmoil, I and my colleagues in the Administration have constantly kept a very close watch on its development and its impact on Hong Kong. Some measures are already in place. We fully understand that our economic situation now is very critical. Therefore, we need to adopt a pragmatic and timely approach by providing all responsive strategies, proposals and measures that are necessary to relieve the economic difficulties, and to brave the challenges with unreserved determination.
In response to the crisis, of course we need to uphold the following key principles: maintain the confidence of overseas countries and investors; efforts must be made to ensure that the currency linking system remains intact; strict adherence to market practices must be observed and the long-established financial management principle must be followed. What needs to be stressed is that if we do not maintain the currency linking system, the economic consequences will be unthinkable. If we do not have a comprehensive package to maintain the confidence of overseas investors, repeated pressure will be exerted on Hong Kong dollar. Then, the efforts we have made to relieve our economic difficulties will be in vain.
The measures that we announce today have been hammered out after thorough consideration of the present economic situation of Hong Kong, the forecast of developments in the forthcoming quarters, and the fact that external factors remain uncertain. We hope that all the measures we adopt will achieve the following three goals:
Firstly, we need to ease the problems of cash shortage and credit crunch to maintain a stable banking system. We also need to render assistance to the small- and medium-size businesses in seeking financing.
Secondly, we hope that the property prices would be stabilized as soon as possible. It is also our hope to realize our common goal of creating a pleasant place for living and working for the people of Hong Kong.
Thirdly, we hope to assist various businesses to reduce their operating cost and to relieve the pain of the people.
Specifically, the measures are as follows:
The SAR Government will improve the profit tax system. With effect from today, interest earnings by companies in savings in local banks can be exempted from profit tax. This will encourage enterprises to keep their capital in Hong Kong.
The SAR Government will withhold land sale by auction and tender from today until March 31, 1999.
The SAR government will allocate funds for the Housing Society to increase the loan to "home starters" this year by HK$3.6 billion for an additional 6,000 first-time property buyers. On the other hand, the Housing Authority will consider increasing the number of people in middle and low income groups benefitting from home purchase assistance, from 4,500 to 10,000.
In addition to the HK$ 500 million credit guarantee offered to small and medium enterprises engaged in export, the SAR government will inject HK$ 2 billion to assist all kinds of small and medium enterprises in securing credit.
The SAR government will launch a rates-return exercise that involves a total amount of HK$ 3.88 billion to ease the burden of Hong Kong people.
We will be providing separately the details of the measures devised by the SAR government and other tax relief arrangements.
Here, I would like to talk a little bit more about the measures concerning the property market and the small and medium enterprises. Owing to the rapid growth of population and the great demand for land, whether at present or in the future, the property market will be one of the pillars of Hong Kong's economy. I fully understand that to our people, home purchase means the securing of accommodation as well as the investment by individuals or family. To the general public, the decision on home purchase is a very important one to make in one's lifetime and involves long-term financial commitment of the whole family. Last year, when property prices were soaring, the government launched a long-term housing plan to avert the development of a bubble economy and to reduce the level of speculation in the property market. Now that property prices have plunged a great deal, our financial and banking systems will be endangered if this persists. Therefore, the SAR government must adopt measures to stabilize the property market. It is hoped that we can achieve this at the present stage. Although we have suspended land sales, our long-term target to make land available for the provision of 85,000 flats will remain unchanged. We will continue to form land, provide ancillary infrastructure, supply the right amount of land according to market demand and keep the property market stable.
The economy of Hong Kong is characterized by a predominance of small and medium enterprises, which offer a lot of job opportunities to our people. The measures adopted by the SAR government aim at helping small and medium enterprises with their effective operation during this relatively difficult time through easier access to credit. It is hoped that these establishments can continue to operate effectively and contribute to the overall economy of Hong Kong.
Furthermore, we have made another unusual decision, that is to freeze my own salary adjustment as well as those of all directorate staff at D3 level and above. This decision is supported by my colleagues as well as the Executive Council. I believe that in this difficult time, as leading officials of the SAR government, we are all determined to act and pass this difficult time together with the community.
As a result of this financial turmoil, it is certain that the days ahead will be very difficult. But I can say for sure that our financial foundation is very solid, our monetary system is robust, our currency, backed up by the currency board arrangement, is stable. Our policies to stick to the linked exchange rate system and prudent fiscal management will remain unchanged. Given this, and coupled with our advantages of the strong economic development in the Mainland as backup, Hong Kong will complete our economic adjustments very soon and emerge from this difficult situation.
In times of prosperity, we have to be prepared for adversity. And at times of adversity, we have to equip ourselves better and remain optimistic. Since Hong Kong is an international city, the inflow of overseas capital will depend on investors' confidence in Hong Kong as well as our confidence in ourselves. I earnestly hope that the whole community will face the challenges with courage, firmly believe that our joint efforts and confidence in our future will help us overcome any difficulties. And we are going to have a brighter future ahead of us.
End/Monday, June 22, 1998
NNNN