LCQ4: Relief measures to cope with economic recession
Some members of the public have relayed to me that the Central Government has all along been emphasising the need to better safeguard people's sense of fulfilment and happiness, and the SAR Government has also mentioned in the latest Policy Address that it endeavours to better serve our people. However, while Hong Kong has over the past year fallen into an economic recession, with many industries languishing, countless cases of unemployment and business closures as well as negative equity cases increased by many folds, the Policy Address has no merit worth mentioning in respect of measures to support the middle and sandwich classes. During the time when the Government was conducting consultation on the Policy Address, I proposed that the Chief Executive should have the foresight of an imminent economic recession, and implement as early as possible relief measures such as "tax rebates, withdrawal of harsh measures and stamp duty reduction", as well as suspension of making Mandatory Provident Fund (MPF) contributions and payments for MPF contributions made on people's behalf, so as to practically achieve the policy objectives emphasised by the Central Government. In this connection, will the Government inform this Council:
(1) whether it has assessed if there have been signs of deterioration in the stock market, property market and bond market, as well as the drop in the Government's fiscal reserves and foreign exchange reserves, since the beginning of this year; if it has, of the details;
(2) whether it will, as early as possible, instruct the Financial Secretary to examine afresh the aforesaid relief measures proposed, so as to enable our people to have a sense of fulfilment and happiness during the economic recession; and
(3) whether it will examine the formulation of indicators whereby the Government will immediately implement the aforesaid relief measures proposed upon Hong Kong's number of negative equity cases, volume of property transactions, amount of loss in MPF investment, fiscal reserves and foreign exchange reserves reaching a certain alert level?
First of all, I would like to thank the Hon Paul Tse for raising this question of such extensive coverage. In consultation with the relevant policy bureaux and the Hong Kong Monetary Authority, we have prepared a consolidated reply to the question as follows:
Due to the fifth wave of the epidemic, Hong Kong's economy worsened significantly in the first quarter this year. The economy improved slightly in the second quarter as the epidemic stabilised. However, while exports have been hit due to deterioration of the external environment, internal investment has also been affected because of tightened financial conditions. Heightened geopolitical tensions have continued to disrupt the global supply chain, and the changing epidemic situation adds to the downside risks. Taking into account the economic performance in the first three quarters of the year and a challenging short-term outlook, the Government has lowered the economic growth forecast for the year as a whole to -3.2 per cent, with a forecast underlying inflation rate of 1.8 per cent.
The labour market has been gradually improving as the local epidemic situation stabilises. The seasonally adjusted unemployment rate fell from a high of 5.4 per cent between February and April to 3.9 per cent in the third quarter of the year.
On property market, residential property transactions have declined markedly in recent months. The number of residential property transactions fell to a monthly average of around 3 700 between July and October, down from 4 200 in the first half of the year. Regarding the mortgage market, the number of negative equity cases rose recently amid an adjustment in property prices. The number of residential mortgage loans in negative equity increased from 55 in the second quarter to 533 in the third quarter of 2022. That said, compared with the peak of 105 700 during the SARS period in 2003, or the high of 11 000 during the global financial crisis in 2008, the number of such cases is still on the low side, with the delinquency ratio of banks' overall mortgage loan portfolio remaining at a close-to-zero level for a prolonged period of time. Therefore, the level of risk involved in bank mortgage business is still currently at a controllable level.
On the financial sector, financial markets around the globe have been volatile since the break of 2022. As an international financial centre, Hong Kong's stock market is equally susceptible to external factors. The investment environment in the third quarter continued to be dominated by various major factors, such as the surge in inflation, contractionary monetary policies by central banks, geopolitical conflicts, the energy crisis and worries of economic recessions, etc. These factors have exacerbated volatility of the financial market. Global stock markets plummeted in the third quarter. The Hang Seng Index plunged by 21.2 per cent and the market capitalisation of the Hong Kong stock market shrank by 21.1 per cent to $30.8 trillion in the same quarter. On bond market, sovereign bond yields in major markets continued to surge. The 10-year US Treasury yield rose to 3.8 per cent in the third quarter, the highest since 2010. The foreign currency reserve assets of Hong Kong dropped from US$496.9 billion at end-2021 to US$419.2 billion at end-September 2022.
Besides, owing to the sluggish economy, government revenue would fall short of expectations, while expenditure would rise. Under such circumstances, the fiscal position for the 2022-23 financial year would be worse than originally anticipated. We are expecting a deficit of over $100 billion, far above the estimated amount of $56.3 billion in the Budget early this year. Having said that, our fiscal reserves are still at an adequate level.
As for the Mandatory Provident Fund (MPF), despite the recent volatility in the investment market, in the past 21 years as a whole, the MPF System recorded positive returns for 14 years, and those years with negative returns were often followed by a rebound. As the MPF System is for long-term investment of savings, scheme members need not be overly concerned about short-term financial market volatility.
Our Continued Work
Notwithstanding the various aforementioned challenges faced by Hong Kong's economy in the short term, we believe that in the medium to long term, opportunities and challenges will co-exist in Hong Kong, with the former outnumbering the latter. Under "One Country, Two Systems", Hong Kong enjoys the unique advantage of "strong support from the Motherland and close connection to the world". We have to make better use of the opportunities and potential pertaining to such advantages to give fuller play to Hong Kong's roles as a "super-connector".
In fact, our recent relaxation of the testing and quarantine arrangements for inbound tourists and restrictions on inbound tour group travellers have had positive impact on Hong Kong's economy. Improvements in the labour market and the Consumption Voucher Scheme are also expected to continue to stabilise consumption demands in the short term. As long as the epidemic remains under control, economic activities will have further room for recovery.
Also, maintaining healthy and stable development of the private residential property market has always been one of the important goals of the Government's housing policies. Having considered a number of factors holistically (including the speed and range of property price changes, the transaction volume of residential properties, future supplies, the economic situation and outlook, and market sentiments), we do not consider it necessary to adjust the measures to monitor the demands for residential properties under the current environment. We will continue to make reference to the relevant indicators, and take timely and appropriate measures in response to market changes.
On public finance, the Government has always been adhering to the principles of exercising fiscal prudence and committing resources as and when justified and needed in public finance management. To address the downward pressure on our economy brought by the epidemic and the external environment, we will continue to adopt expansionary fiscal policies and launch counter-cyclical measures. We will continue to monitor different changes in circumstances closely in future, make dynamic evaluations, duly conduct risk management, and exercise prudence in financial management. At the same time, we have to consider how to make use of our fiscal reserves to support the economy and relieve people's burden in difficult times in preparation for a robust rebound. The Government will continue to review the levels of its revenue, expenditure and fiscal reserves, and strike the right balance having regard to the imminent and long-term needs of society when formulating corresponding measures and financial arrangements.
It has been clearly explained in this year's Policy Address of the Chief Executive that the Government will take on practical measures with active planning and a proactive attitude and will vigorously drive Hong Kong towards better development, thereby providing greater impetus for our country's development. Consultation on the upcoming Budget will soon commence, and the Financial Secretary will gauge the views of the various sectors of society during the consultation period, including their views on future relief measures.
Thank you! President.
Ends/Wednesday, November 23, 2022
Issued at HKT 15:10
Issued at HKT 15:10