Word-up: Hong Kong budgets for trouble ahead

Hong Kong finance chief Paul Chan delivers a budget that gives but takes no chances in a world wracked by superpower trade tensions and heightened economic uncertainty.

Budgets are principally about numbers but the language used to convey the income and expenditure estimates of a country or jurisdiction often help to illuminate the bald figures.

On Wednesday, that was particularly pertinent as Hong Kong Financial Secretary Paul Chan generously peppered his second annual budget speech with the word “external” – and more often than not together with the words “shock”, “uncertainty”, “headwinds” and “pressures”.

Chan's message was clear: in a volatile and unpredictable world buffeted by a superpower trade war, shrinking economic growth and a beast called Brexit, this is not the time to take any chances – at least for the foreseeable future.

And even less so when weaker-than-expected economic growth of 3% for the whole of 2018, slipping to 1.3% in the fourth quarter of the fiscal year, is taken into account.

As a result, the numbers Chan crunched can best be described as modest. While Chan did announce significant cash injections to boost technological innovation, help find a cure for Hong Kong’s sick healthcare system and give some relief to its burgeoning elderly population – not to mention a HK$600 million ($76.4 million) clean-up of the city’s crumbling public toilets – he was constrained by having a smaller pile of cash to spend than in his maiden 2018-2019 budget.

The finance chief said the fiscal surplus available to him this year was HK$58.7 billion, significantly down on the HK$149 billion of last year due not just to the international trade war but also a cooling property market, which punched a hole in land sales and stamp-duty revenues. Nevertheless, the surplus figure surpassed Chan’s original estimate of HK$46.6 billion.

PwC Hong Kong Tax Partner, Jeremy Choi, characterised Chan’s speech as one in which he was “cautiously investing for the future’’.

“He has done what any responsible financial secretary should do in challenging economic times and that is, invest in the future but do so in a prudent manner. Money is – quite properly – being put into the hardware required for the development of science and innovation, technology and financial services,’’ Choi told FinanceAsia.

Choi also welcomed the injection of a further HK$1 billion into the Dedicated Fund on Branding, Upgrading and Domestic Sales – widely known as the BUD Fund – on top of the HK$1.5 billion Chan pumped in last year, which he said would offer small and medium-sized enterprises a leg-up.

On the regulatory front, Chan said the Securities and Futures Commission was pushing ahead with the new two-pronged regulatory approach to virtual assets that it announced in November 2018. This aims to encourage market innovation while protecting investors as the city prepares to issue its first virtual banking licences.   

INTEGRATION, INTEGRATION, INTEGRATION

Another key area in which words trumped numbers for the financial secretary was that of "integration" with mainland China, most notably in relation to the announcement last week of the Outline Development Plan for the Guangdong-Hong Kong-Macau Greater Bay Area.

Chan referred to the Greater Bay Area by name no less than 20 times in a budgetary offering liberally seasoned with clarion calls for greater mainland integration.

Iris Pang, Greater China economist with ING, said Greater Bay Area integration would almost certainly provide a stepping stone for Hong Kong to integrate more deeply with the rest of mainland China, creating yet more economic opportunities.

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