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Budget Speech by the Financial Secretary (3)

Getting Hong Kong Well Prepared

33. Faced with so many uncertainties, we must get well prepared for our future.  While short-term relief measures are essential to stabilising our economy and tiding our community over difficult times, we must also seize this moment when our financial position is sound to invest in our future.  I shall propose measures to address this issue in six respects, namely supporting enterprises, preserving employment, caring for people, stabilising our financial system, increasing land supply and strengthening our social capital.

Supporting Enterprises

34. First of all, lending support to enterprises.  I am deeply concerned about the possible hardship small and medium enterprises (SMEs) may suffer in times of economic downturn.  Making up the vast majority of the enterprises in Hong Kong, SMEs employ over 1.2 million staff, representing half of the total number of employees in the private sector.  We must do our utmost to help SMEs get through difficult times in order to minimise unemployment.  I shall now propose a series of supportive measures for them.

35. To address the financing difficulties faced by SMEs, the Government introduced the Special Loan Guarantee Scheme in 2008.  With the recovery of the economy, the Scheme ceased to accept applications on January 1, 2011.  It was replaced by a market-oriented sustainable SME Financing Guarantee Scheme launched by the Hong Kong Mortgage Corporation Limited (HKMC).  The new Scheme offers financing guarantee services catered for SMEs and helps reduce banks' lending risks, thereby contributing to maintaining the stability of our banking system.

36. Given the fluctuations in the external economic environment in the coming year, SMEs may have to face financing difficulties once again as a result of the credit crunch.  After taking into account suggestions by SMEs and the banking sector, we propose to substantially enhance the existing SME Financing Guarantee Scheme by introducing a number of concessionary measures.

37. Under the SME Financing Guarantee Scheme, the maximum loan guarantee ratio is 70 per cent.  The concessionary measures will include a new loan guarantee product with a higher ratio of 80 per cent for which the Government will provide a total guarantee commitment of $100 billion.  While the annual guarantee fee for a loan with a guarantee ratio of 70 per cent currently stands at 32 to 35 per cent of the loan facility's interest rate, that for a loan with a guarantee ratio of 80 per cent under the new concessionary measures will be lowered to 10 to 12 per cent.  Take a $1 million loan at an interest rate of five per cent per annum as an example.  The annual guarantee fee for a loan with a guarantee ratio of 70 per cent is $16,000 under the current Scheme.  The annual guarantee fee for a loan with a guarantee ratio of 80 per cent under the concessionary measures will only be $5,000, 70 per cent less when compared to the current rate.  The concessionary scheme will be open for application for nine months.  Taking into account the anticipated default rate, the estimated government expenditure will be about $11 billion.

38. The increase in loan guarantee ratio under the SME Financing Guarantee Scheme will enhance lending institutions' confidence in offering loans to SMEs to meet their financing needs.  The significant reduction in guarantee fee will also reduce the burden on SMEs.  We consider that a limited guarantee fee will ensure appropriate risk sharing among lending institutions, enterprises and Government, and hence the proper use of public money.  To tide enterprises over difficult times, the HKMC will launch the concessionary measures as soon as possible, and discuss with lending institutions and enterprises ways to simplify the Scheme's existing procedures.

39. In times of economic downturn, exporters will face a shrinking overseas market as well as increasing risks of default in payment by buyers.  In December 2011, the Hong Kong Export Credit Insurance Corporation (ECIC), with the full support of the Government, introduced three enhanced measures, namely (1) waiving its annual policy fee for one year; (2) providing exporters with free buyer credit assessment service; and (3) expediting the assessment of small credit limit applications.

40. To further assist SMEs, the ECIC will introduce new terms in their insurance policy, which will include special concessions for SMEs, on February 6.  For example, SME policyholders will be allowed to insure their exports only for places and buyers of their choice under specified circumstances, and will be offered various premium discounts.  Moreover, the ECIC will extend the sales-by policy launched in March last year to contracts between Hong Kong exporters' overseas or Mainland subsidiaries of which the Hong Kong policyholders have control, and their buyers.  I believe that these new initiatives will further help SMEs maintain their competitiveness, tap into emerging markets and ease their financial pressure.

41. In the face of the worsening external economic environment, we need to help our enterprises by reducing their operating costs and enhancing our competitiveness so as to protect employment.  To this end, I propose four measures as follows:

(1) Waiving the business registration fees for 2012-13 to benefit all business operators.  This proposal will cost the Government $1.9 billion;

(2) Reducing profits tax for 2011-12 by 75 per cent, subject to a ceiling of $12,000.  The reduction will be reflected in the taxpayers' final tax payable for 2011-12.  The proposal will benefit all taxpayers who are liable to profits tax, the number of which is near 120 000.  This proposal will cost the Government $1.12 billion;

(3) Halving the charges for import and export declarations.  We estimate that each enterprise engaging in import and export businesses will save $9,000 a year on average.  This will cost the Government $750 million a year; and

(4) Abolishing capital duty levied on local companies.  This is to encourage investors to set up companies in Hong Kong to raise capital and expand their business, thereby enhancing Hong Kong's competitiveness as a corporate domicile.  This proposal will cost the Government $90 million a year.

Preserving Employment

42. Second, we will strive to preserve employment.  Overall employment in Hong Kong is largely stable with the unemployment rate standing at a relatively low level.  However, I expect the unemployment rate to reverse its downtrend as the economy slows down.  We should therefore be well prepared so that timely measures can be taken to lessen any impact on the community when there is an upward pressure on the unemployment rate.

43. We shall continue with the strategy which helped us tackle the 2008 financial tsunami.  We shall, on the one hand, stabilise the employment market through the supportive measures for enterprises I have just mentioned, and provide suitable employment support and training directly for our working population on the other.

44. Take the construction industry as an example.  Heavy investment in infrastructure projects by this Government has brought about a substantial increase in demand for construction workers, and the employment situation has been improving in the industry.  The unemployment rate for the industry in the latest quarter is 5.2 per cent, far below the post-tsunami peak of 12.8 per cent in 2008.

45. In 2010, I earmarked $100 million to implement various initiatives to attract more people to join the construction industry.  These measures have started to deliver results.  The construction workforce has grown to its present strength of more than 300 000, easing the problem of an ageing workforce and succession gap faced by the industry in recent years.  To ride the wave, I propose to earmark another $220 million to support the Construction Industry Council in enhancing manpower training.  The aim is to bring fresh blood into the industry to meet the demand of future infrastructure developments.

46. The catering and retail industries have been providing employment opportunities for the grass roots.  The Labour Department's Recruitment Centre for the Catering Industry and Recruitment Centre for the Retail Industry will strengthen liaison with employers in both industries to better serve their recruitment needs, and disseminate up-to-date information on the employment market to job seekers.  In addition, the Employees Retraining Board (ERB) will continue to provide courses to help people who are seeking employment or changing jobs to join the catering and retail trades.  Courses are also offered to employees of both trades to upgrade their skills.

47. The Vocational Training Council will set up an International Cuisine College for people aspiring to become professional chefs in international cuisines.  Apart from providing vocational training to those who wish to pursue a career in the catering industry, the College will offer multiple study pathways for youngsters.  The College, to be established with a capital expenditure of $500 million, is expected to admit its first cohort of students in the 2014/15 academic year.  It will provide more than 2 000 places a year.

48. With the economy slowing down and the unemployment rate reversing its downtrend, certain groups of people in society will be the first to bear the brunt.  We shall soon inject $100 million into the Enhancing Employment of People with Disabilities through Small Enterprises Project, under which funding is granted to non-government organisations to set up small enterprises employing people with disabilities.  We shall continue the Youth Pre-employment Training Programme and Youth Work Experience and Training Scheme, Employment Programme for the Middle-aged, and Work Orientation and Placement Scheme to facilitate the employment of young people, the middle-aged and the disabled.  These special employment programmes, which involve an annual expenditure of $175 million, benefit 20 000 job seekers with employment difficulties each year.

49. The ERB will offer 130 000 training places in 2012-13, and allocate additional resources for the provision of placement-tied courses for the unemployed and people seeking employment.  Adequate resources have also been reserved for providing an additional 30 000 training places.  This will enable the ERB to respond promptly to the demand from training providers for increasing or redeploying the places to meet contingencies.

50. The Government will remain vigilant against any serious deterioration in the economic situation and its impact on employment.  When necessary, we shall provide further funding to adjust and enhance the relevant employment programmes.

(To be continued)

Ends/Wednesday, February 1, 2012
Issued at HKT 11:36


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