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Following is the speech delivered by the Financial Secretary, Mr John C Tsang, at the Hong Kong Management Association Annual Fellowship Dinner 2008 at InterContinental Hong Kong today (November 25):
David, distinguished guests, ladies and gentlemen,
Good evening.
It is my great pleasure to join you for this year's Annual Fellowship Dinner.
At about this time last year, I was starting to prepare my first Budget. The economy was ticking along nicely then. We had a record budget surplus and confidence was roaringly high. The sub-prime lending problem in the US was just beginning to rear its ugly head, and against the rosy economic picture that was then prevalent, there was little indication of just how deep the crisis would bite in the US as well as the rest of the world.
What a difference a year makes. Now we are facing the most devastating global financial crisis any living person can remember. Although we are currently facing some of the most difficult economic challenges of our generation, I am fully confident that if we were able to maintain our usual confidence and our usual "can do" spirit, we have the required expertise, the necessary resources and the fundamental strengths to prevail.
Earlier today, I began my program of budget consultations for the 2009-2010 Budget. I met with three groups of legislators this afternoon, and there were some pretty interesting ideas. I took the opportunity to set out the three principles that underline the preparation of this budget. Firstly, my primary consideration is the effective creation of jobs. Secondly, I would also make good use of the community's resources in implementing measures that would serve to enhance the competitiveness of Hong Kong. Thirdly, the measures must be sustainable and beneficial to our longer term economic development.
There will be many more consultations in the coming weeks, and I hope that we will be able to collect useful suggestions to formulate a substantial package that will help to assist the vulnerable members of our society and tide us over this difficult period.
You have a role to play too. Please take some time to share your views with us on the upcoming budget during the consultation period using ordinary mail or our website at www.budget.gov.hk.
Since its establishment in 1960, the Hong Kong Management Association, or the HKMA, has been fully engaged in our city's rapid economic transformation from a manufacturing base to a services economy. I know that I can continue to count on your support as we navigate through this mega financial storm.
With about 2,400 training programmes annually, the association has an important role to play in keeping our management community up to speed in a fast-changing business environment. In good times and in not so good times, we must all remain focused and committed to the long-term prosperity of our city and our people.
I applaud the HKMA's mission, and I quote "improving the effectiveness and efficiency of management in Hong Kong", end quote. I commend also the association and its members on your good work over the years.
Tonight, I shall say a few words about the global financial crisis and its impact on Hong Kong. Then, I shall share with you some further thoughts on preparing the next Budget.
Ladies and Gentlemen, the "R" word is on the minds of many at this time and major economies are all facing the threat of a prolonged recession. Hong Kong, with a small and open economy, will not be able to escape unscathed from the impact of the global financial crisis. We will have to face the music, together with the rest of the world, and this music is not exactly the pleasant sort.
Last week, I attended the G-20 Summit as part of the Chinese delegation led by President Hu Jintao in Washington, DC, the first summit of its kind for world leaders to come together to deal with a major international financial crisis. During the summit, leaders agreed, among other things, on the need for a co-ordinated approach to fundamental reforms of the global financial system.
This includes establishing international colleges of regulators who would co-operate on the national level as well as on the international level. In our globalised world, it is important that regulators are aware of what is going on in different countries as well as in their own. This will help reduce the risk and the contagion effect of financial instability spreading from one economy to another. This domino effect has been a key feature of the current crisis, and we must learn from the experience.
The summit also agreed that there should be more transparency in our financial systems. Leaders also see benefits in streamlining accounting standards, and a review of executive compensation schemes that have encouraged irresponsible risk-taking. Other focus areas include the disclosure of toxic assets and reform of credit-rating agencies to make them more accountable.
The G-20 leaders have set a clear timetable for the reforms to begin. Finance ministers, with the help of international financial institutions, such as the Financial Stability Forum, are expected to prepare measures for implementing reforms by end-March next year. A follow-up leaders' summit around April will likely take place in London with the UK at the chair of the G-20 at that time to give impetus to the recommendations of the finance ministers. This is a very important exercise that will no doubt help reduce the length of the current suffering.
As a global financial centre, Hong Kong will play its part in helping to implement the G-20 agenda in establishing a strong, efficient and stable global financial system. We will work closely with other economies and international financial institutions in co-ordinating our response to the crisis. We will also share our own bitter experiences learned from the Asian financial crisis a decade ago.
So what are we up against on the home front?
The growth of our economy slowed notably in the third quarter of 2008. In the three months to September, our economy grew 1.7% compared to the same period last year. That is down from second-quarter growth of 4.2% and a first quarter growth of 7.3%. We are feeling the pinch on two fronts. First, the external sector slackened due to slower global demand. And secondly, domestic demand has been hit mainly by falling share prices and the fear of job losses.
Our full-year economic growth forecast for this year has been revised downwards to somewhere between 3% and 3.5%. This is lower than the earlier prediction of growth between 4% and 5%. We have also seen unemployment rise from the low of 3.2% in the second quarter to 3.5% in the August to October period. Job prospects have dimmed in recent months, and there is no immediate sign that the situation will improve in the near term.
On the financial front, we can take comfort from our strong fundamentals. We enjoy increasingly close financial integration and co-operation with the Mainland. We also enjoy political stability, the rule of law and an open and highly cost-effective business environment. We have a large pool of local and international financial talents and free flow of information, ideas and capital.
As I have mentioned earlier, we support the implementation of measures to address the major financial issues facing the world now and in the longer term.
In Hong Kong, we have been reviewing and revamping the financial regulatory systems and strengthening prudential oversight of capital, liquidity and risk management.
We will continue to promote strong corporate governance and reassess the role and use of credit ratings.
As well as remaining alert to global developments, Hong Kong has put in place a number of measures in the past few months to maintain an orderly operation of the local financial markets.
Since September this year, the Hong Kong Monetary Authority, the other HKMA, has injected about HK$55 billion making a total of about HK$84 billion in aggregate balance to lessen volatility in the markets and ease tightness in interbank liquidity. The authority has also introduced five temporary measures that have been fine-tuned subsequently to give even greater flexibility to the arrangement in order to provide liquidity assistance to licensed banks in Hong Kong. It has also agreed to allow greater flexibility in the maintenance of the capital adequacy ratio for individual banks to provide even more room for authorised institutions to engage in business.
Last month, we guaranteed all customer deposits held in authorised institutions in Hong Kong until at least the end of 2010. And we established the Contingent Bank Capital Facility to make available additional capital to locally incorporated banks on request.
These are timely and necessary steps to address instability in the financial markets. However, the risk of painful recession remains.
This brings me back to the Budget.
I will be looking to you, along with the wider community, to help provide a complete range of views for incorporation into my Budget.
Your suggestions will help me with what will certainly be a delicate and tricky financial balancing act. On the one hand, we need to reinvigorate the economy, create jobs, stimulate innovation and strengthen our financial institutions.
On the other hand, we must continue to improve the livelihoods of our people, especially those who are vulnerable like the elderly, the sick and those living on low-income. Health care, education and social services will remain priority areas for the Government.
These two streams of issues do not necessarily contradict each other. We must find some way to identify the intersection of these two diverse streams and to complement measures that will help achieve both sets of objectives.
You may recall that we introduced a package of measures to help reduce the inflationary pressure that was prevalent earlier this year. We have been successful in bringing the inflation rate down to 1.8% in October. We also introduced a package of measures to return wealth to our community with the aim of creating some fiscal stimulation around year end when our economy begins to slow notably. I hope with the reduction in tax payments, citizens like yourselves will be more willing to spend during the holiday seasons. That will give our economy a well timed boost. These measures have increased our expenditure. The deficit for this fiscal year will be higher, some say by an order of magnitude higher, than our original forecast of $7.5 billion.
I spoke earlier of the three underlying principles for the next Budget. I will adhere also to the three principles of public finance management that I highlighted in my first Budget. The three principles are: commitment to society, sustainability and pragmatism. These principles will continue to form the platform for my fiscal deliberations.
Some of the issues that I will be tackling in the Budget Consultations include the role of Government in our economic development, ways to maintain our competitive edge and promoting a caring society.
Hong Kong has thrived on open market policies, free trade, a liberal immigration regime and minimal Government intervention. The city is a magnet for overseas companies because of our access to the Mainland, low taxes and simple tax regime, tried and trusted legal system and clean and efficient government.
Attracting more investments will help to provide jobs and to maintain prosperity. We are also making good progress on a number of large-scale infrastructure projects, including the West Kowloon Cultural District, the Hong Kong-Zhuhai-Macao Bridge and the Kai Tak Development Project.
These projects, together with other smaller ones, will provide economic momentum in the next couple of years, exactly the timeframe when we expect the financial crisis to be at its most severe. Of course, we must take care to avoid potential bottlenecks in the construction sector.
Ladies and Gentlemen, we will spare no effort in regenerating our economic momentum and protecting our community against future shocks. We will continue to play to our strengths by making the most of our close ties with the Mainland. At the same time, we will maintain our international outlook, and explore ways to build our reputation as an international city and as Asia's world city.
One thing about small and open economies, like Hong Kong, is that we can react faster when opportunities arise. But we must be well-prepared, and I can assure you that we will be quick off the mark.
Ladies and Gentlemen, I look forward to continued close co-operation between the Government and the Hong Kong Management Association so that our businesses and our hard working labour force will continue to adapt to our changing economic landscape.
It only remains for me to congratulate the Management Studies graduates who are receiving their diplomas tonight.
And, of course, I look forward to hearing your views on the upcoming budget.
Thank you very much and have a great evening.
Ends/Tuesday, November 25, 2008
Issued at HKT 20:14
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