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The Financial Secretary, Mr John C Tsang, today (November 6) addressed the Asia-Pacific Economic Co-operation (APEC) member economies on the daunting challenges posed by continuous capital inflows.
Speaking at the 17th APEC Finance Ministers' Meeting in Kyoto, Mr Tsang warned that although governments and central banks in Asia had handled the 2008 global financial crisis well, the external outlook has turned more uncertain as Europe's sovereign debt problem and weak growth in the United States and Japan weigh heavily on the global recovery.
"There does not appear to be a quick fix, and the situation will continue in the medium term. The world economy requires rebalancing and we in Asia need to focus on finding new markets and developing our own domestically driven growth," Mr Tsang said.
He pointed out that the fragile external environment meant that the abundant supply of global liquidity floating around an ultra-low interest rate was going to remain longer than earlier expected. This would entail a higher risk of "asset market exuberance" in Asia.
"We in Hong Kong, China, have already announced several rounds of measures to ensure the healthy and stable development of our property market. The measures aim to increase supply, curb property speculation, ensure transparency and prevent excessive expansion in mortgage lending.
"These measures are taking effect. But with further quantitative easing initiatives such as America's second round of quantitative easing (QE2), market volatility will increase and asset price inflation will worsen. We are extremely concerned with the impact of QE2 on the regional economies and will not hesitate to introduce further appropriate measures should that prove necessary," he added.
Noting that other countries in Asia were also facing daunting challenges from continuous capital inflows, he said: "Whatever the measures authorities across Asia have taken or will take, these measures are all meant to maintain the sound fundamentals of Asian economies, which are important for a solid, sustainable recovery."
In addition to continuous capital inflows, Mr Tsang warned the meeting to guard against upside risks in inflation and rising protectionist sentiment that would jeopardise the global recovery.
In the ministerial retreat, Mr Tsang talked on fiscal prudence - the guiding principle of Hong Kong, China in managing public finance.
Mr Tsang told the meeting that Hong Kong follows the principles of keeping expenditure within the limits of revenue in drawing up its budget - striving to achieve fiscal balance, avoiding deficits and keeping the budget commensurate with the growth rate of GDP, all in the context of a low and simple tax regime.
He pledged to continue to observe the principle of fiscal prudence in managing finances in order to face up to the ever increasing challenges from the global economy and from the structural changes in the community.
With the conclusion of APEC Finance Ministers' Meeting, Mr Tsang will return to Hong Kong tomorrow (November 7).
Ends/Saturday, November 6, 2010
Issued at HKT 15:00
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