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Following is the speech by the Financial Secretary, Mr John C Tsang, at the Joint Business Community Luncheon "Supporting a business-led recovery" at the Hong Kong Convention and Exhibition Centre this afternoon (March 12).
Distinguished Guests, Ladies and Gentlemen,
Good afternoon to you all.
It is indeed my great pleasure to join you all for this traditional post-Budget "get-together".
First of all, I would like to thank our business community for your continued commitment to Hong Kong and your absolute confidence in our city throughout the worst global financial crisis that we have encountered since the Great Depression.
With Hong Kong's stability and openness, with our nation's economic strength, and with our region's growing integration, the future for us remains bright.
But these are still the early days of our recovery. An element of uncertainty, that has been summed up in my Budget by the phrase that we all love to hate - "cautiously optimistic", remains.
Although I am cautious about the pitfalls that undoubtedly lie ahead, I am also optimistic that our business community will rise once again to the challenge.
My talk today will focus on the proposals and initiatives contained in my Budget that are designed to pave the way for a business-led recovery.
First though, a few words about my initiatives to maintain a stable and healthy property sector. The key word is "stability". Current low interest rates, an inflow of funds and a relatively low supply of flats have increased the risk of a bubble forming in our property market.
In my Budget, to help reduce the risk of a property bubble, I laid out a four-pronged strategy. First, we are increasing the supply of flats. Here, we are liaising closely with the MTR Corporation and the Urban Renewal Authority to increase the supply of residential flats under their programms. We are refining the Application List arrangement, and depending on market conditions, we are putting up several urban residential sites in the List for sale by auction or tender. We are exploring ways to revitalise the secondary market for Home Ownership Scheme flats. In addition, we intend to sell by open tender a site in Yuen Long for development of small and medium-sized flats by specifying in the land sale conditions requirements in term of the minimum number of flats and the size of such units. The URA project in the vicinity of the building that collapsed in Ma Tau Wai will also boost the supply of small and medium-sized flats to meet increasing demand from the community.
Secondly, we will increase the transaction cost of property speculation. I have proposed that from April 1, stamp duty on properties valued at over $20 million will be raised from 3.75 per cent to 4.25 per cent. I wish to remind tax payers, once again, that our Inland Revenue Department has established procedures to track property transactions involving speculation. If these transactions were found to constitute a business, we will levy profits tax, the current rate is 16.5 per cent, on those concerned for profits arising from such transactions.
The third point is to ensure transparency in property transactions so that buyers have clear information. This includes accurately listing the saleable area of individual flats and using a reasonable floor numbering system. We are exploring further measures to strengthen market regulations, and will continue to work to uphold fairness in our markets.
And fourth, we shall prevent the excessive expansion of mortgage lending and ensure banks process mortgage loan applications prudently. We will introduce further measures when it is necessary to strengthen further the prudent regulation of our banks.
This basket of measures is not introduced to be a quick-fix, and it does not come with a promise of overnight results. This is a balance package that serves the entire community, and not any particular sectors, and it will take time to work its way into the market, especially in terms of increasing the supply of flats. Perhaps most important in the short term, these measures should send a clear and strong message to the market, and to the public of our intentions to curb property speculation and dampen price fluctuations.
People should also recognise that the current low interest rates will not last forever. They will eventually change, and the only way for them to go at this point is up. For those who are making the most important investment in their lives, they should factor the rise in interest rate in their affordability calculations now in order to avoid unnecessary pains later.
The Government will continue to monitor market developments closely. If need be, we will implement additional measures to cool speculation. We also recognise that the property market is extremely sensitive and important to our economy and our community. We don't want to over-do things that would risk hurting the market. My Budget contains timely and appropriate measures to promote long-term stability of the property market.
Now, looking at the broader economic picture, I firmly believe that the best way for every sector of our community to benefit from the economic recovery is by boosting competitiveness so that businesses can create more jobs and opportunities.
I am also encouraged by a new awareness of corporate social responsibility that has emerged during the financial crisis.
Before I go into details about the various initiatives, allow me to take you back 12 months. This will help to put the Budget into proper context.
When we met for the Joint Chambers Luncheon last year, the financial crisis was at its most ferocious.
Just 12 months ago, the news headlines were dominated by banks failing, industries in crisis and a world in recession.
Hong Kong's exports experienced a record decline in the first quarter of last year, our economy was shrinking, unemployment was rising and the prospects for an early recovery were bleak.
All this was just a year ago.
Since then we have turned a corner. The green shoots of recovery have begun to flower, but they remain fragile.
Today, the greatest threat to our recovery comes from the financial and economic uncertainties that are still being felt by our major trading partners in Europe, the US and Japan.
These risks will remain in the near term as my fellow finance ministers in their respective governments around the world deal with huge deficits, high unemployment, and the prospect of unwinding extraordinary stimulus measures deployed to combat the crisis.
As a small, open and externally-oriented economy, we shall continue to be affected by economic shocks elsewhere.
On the home front, our city, our nation and our region are all doing quite well. Assuming there are no major surprises, we have good reasons to be confident of healthy growth this year.
In my Budget, I forecast our economy to expand by between 4 and 5 per cent in 2010.
However, here in Hong Kong, we also have to withdraw exceptional measures that have helped businesses during the financial storm.
In December 2008, when firms were feeling the pinch from the credit crunch, we set up a Special Loan Guarantee Scheme, in addition to the SME Loan Guarantee Scheme that have been in existence for some time, to help ease the cash flow problems for companies.
The Scheme has since been extended twice and is now due to expire at end-June this year. So far under the Scheme, banks have approved more than $69 billion in loans. This has benefited over 16 000 companies, indirectly preserving over 290 000 jobs.
The Special Scheme has provided stability and liquidity to the business sector during uncertain times. We shall continue to review the overall situation, and identify areas where the Government can assist companies without distorting the market.
For example, questions have been raised about the depreciation allowances on machinery and plants of Hong Kong factories operating in the Mainland.
The Government will be seeking the views of the Joint Liaison Committee on Taxation to see what we can do to help these factories in terms of tax relief.
We are also assisting Hong Kong factories in the Pearl River Delta region to upgrade to cleaner production techniques. The Cleaner Production Partnership Programme was launched with Guangdong in April 2008. Up to the end of last month, more than 300 companies have joined the Programme and almost 500 funding applications have been approved.
Ladies and Gentlemen, a strong and robust recovery will depend on our business community's ability to adjust to the new post-crisis economic environment. In my Budget, I have proposed a series of measures to support a business-led recovery. This includes promoting the six new priority industries, strengthening soft and hard infrastructure, and fostering cross-boundary co-operation.
You may remember that, in tackling the Asian Financial Crisis a decade ago, we highlighted the four pillar industries of our economy. These are financial services, tourism, trade and logistics and professional services. In 2002, these four industries contributed some 52 per cent of our GDP.
Today, these industries are more developed and contribute some 60 per cent of our GDP.
Crucially, our financial services sector has stood up well to the financial tsunami. Our banks remain well capitalised, our stock market has rebounded strongly, and we have even benefited from the crisis by attracting international talent from financial hubs in Europe and the US.
However, the economic turmoil has exposed the dangers of relying too heavily on a small number of pillar industries.
That's why we have identified six additional priority industries with good potential to grow and to broaden our economic base. These industries are already well-established with proven track records. Importantly, they have good potential to sustain a long-term economic development.
The six industries are: educational services, medical services, environmental industries, testing and certification, innovation and technology, and cultural and creative industries.
In 2008, these industries contributed 8 per cent to GDP and employed some 380 000 people. That's about one-in-ten of our total workforce. I am confident that there is plenty of room for future growth and job creation.
Under the principle of "market leads, government facilitates", we shall create the right conditions for these industries to achieve their full potential. What we can't do is guarantee success - that will be determined by the market.
In my Budget, I announced a range of initiatives to add impetus to these industries. These cover areas such as land resources, economic incentives, providing the right number and the right type of training opportunities, and promoting R&D activities.
First of all, we need to make sure that the required skilled labour will meet the anticipated demand of these industries in the short, medium and long term.
The Vocational Training Council will provide an additional 310 places in its higher diploma programmes on testing and certification, as well as environmental and related studies in the 2010 academic year.
I have also allocated $20 million to the Hong Kong Council for Testing and Certification and $21 million to the Hong Kong Accreditation Services to strengthen services to the industry.
The Hong Kong Design Institute will provide some 4 500 places for design students at its new campus in Tseung Kwan O starting from September.
As well as upgrading our labour force, we also want our businesses to become more competitive and innovative by expanding research and development activities. LegCo has just approved funding of $200 million to set up an "R&D Cash Rebate Scheme" to support such activities. Please do take advantage of this scheme.
We have also decided to expand the Hong Kong Science Park, which has become a magnet for local and overseas technology firms. Work on Phase 3 of the Park will begin next year. The expansion will be completed in stages between 2013 and 2016 and provide an additional 4 000 R&D-related jobs.
To help establish Hong Kong as an education hub, we shall reserve an additional site to set up a self-financing tertiary institution. The site is at the former Queen's Hill Camp in the New Territories. It will provide another 8 000 self-financing degree places, and is in addition to the five sites already reserved for the education sector.
These are just some of the ways that we aim to facilitate growth of the six ssectors.
Over the years, Hong Kong has built up its reputation as a business-friendly city by doing things faster, more reliably and to a higher standard than our competitors.
Modern and far-sighted infrastructure development is essential for our city to maintain our competitive edge. It will also provide the backbone for a more integrated and inter-dependent Pearl River Delta Region.
We have made good use of the economic downtime by pressing ahead with major works that will better connect us with our neighbours in the Mainland and enhance the efficiency of our city.
In just the past few months, work has already begun on the Hong Kong-Zhuhai-Macao Bridge, the Hong Kong Section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link, the Kai Tak cruise terminal and the Central-Wan Chai Bypass project.
I expect capital works expenditure to exceed $49 billion this year, and it will remain high at over this year's level in the next few years. This will cover a period when more large-scale projects get under way, and others reach their construction peaks.
To prepare for the anticipated growing demand for construction workers, I have allocated $100 million to the Construction Industry Council in my Budget. This will go to improving training and working conditions in the construction sector. In turn, we aim to attract more people, especially younger people, to take up construction-related training courses and jobs.
In parallel with the cross-boundary infrastructure projects, the Government will continue to strengthen co-operation with our counterparts across the boundary.
In particular, we look forward to working with our neighbours in Guangdong and Macao in implementing the Outline of the Plan for the Reform and Development of the Pearl River Delta (the Outline).
The Outline was unveiled by the Central Government last year. It has the ambitious goal of establishing the PRD as one of the most competitive regions in the world by 2020.
Hong Kong is ready to take a lead role in this initiative. The entire PRD will be able to benefit from our strength as a global financial centre, shipping hub and world-class services-based economy. In particular, we are working closely with the Guangdong Provincial Government to formulate a framework agreement on Hong Kong/Guangdong co-operation. The framework agreement will translate the macro policies set out in the Outline into concrete measures conducive to the development of both places. It will also establish the basis for incorporating the relevant co-operation initiatives into the National 12th Five-year Plan. We hope to sign the framework agreement with Guangdong soon.
At the same time, we shall continue to open up markets on the Mainland through CEPA. This will include the implementation of even more pilot initiatives in Guangdong at an early stage. It is one way to accelerate economic integration and promote greater co-operation between Hong Kong and Guangdong.
Ladies and Gentlemen, I have covered some of the areas in my Budget that will help make our business even more competitive, and help drive our economic recovery.
My final point today is about the role of the business sector in the wider community, and how we can encourage a culture of corporate social responsibility, or CSR.
The great industrialist Henry Ford once said, and I quote: "A business that makes nothing but money is a poor business." End quote.
It was encouraging for me to see Hong Kong companies go the extra mile in helping preserve employment during the economic downturn. More than 1 000 companies signed an agreement not to lay off staff during the global financial crisis. This is a commendable "first" for Hong Kong. The result was a confidence boost to the community and a relatively stable employment rate throughout the economic downturn. And for that we salute you.
The Government has also worked to preserve jobs and create opportunities. We have brought forward the recruitment of civil servants and introduced new programmes and initiatives through the Labour Department.
Now, as our economy emerges from the global financial crisis, we have an opportunity to raise the bar for CSR.
Good corporate governance can help companies hit hard by the financial crisis to regain the trust and confidence of the community. Stronger co-operation and communication between companies and their stakeholders will help make everyone more aware of their mutual responsibilities.
In the months and years ahead, environmental issues are likely to play a greater role in our day-to-day activities at home, work, school and in our leisure pursuits.
Companies have a social responsibility to become "greener" and more energy efficient. Cleaner production techniques, electric vehicles and energy-saving designs are some of the ways that corporations, and, indeed, the Government, can promote a cleaner environment.
Once again, I thank you all for your continued support of Hong Kong, and for the opportunity for me to outline my Budget measures to the business community.
Many of the Budget initiatives complement Hong Kong's low tax and business-friendly environment. They also support our long-term goals of broadening the economic base, capitalising on the "China advantage" and achieving sustainable growth.
Thank you very much.
Ends/Friday, March 12, 2010
Issued at HKT 14:56
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