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Published: 12:39, March 09, 2022 | Updated: 12:41, March 09, 2022
Chan: HK needs expansionary fiscal stance to sustain economy
By Eugene Chan
Published:12:39, March 09, 2022 Updated:12:41, March 09, 2022 By Eugene Chan

Paul Chan Mo-po, Hong Kong's finance secretary, meets the media at the Central Government Offices in Hong Kong on Sept 16, 2021. (RAYMOND CHAN / CHINA DAILY)

After his latest budget speech, Financial Secretary Paul Chan Mo-po defended criticism that there's not enough resources to beef up contact tracing, saying "it's limited by other constraints, like whether we have enough capacity, in terms of related talent." Asked whether he agrees that relaxation in mortgage insurance will push up property prices, he says the "soft" market now, along with the abundant supply over the next few years, means prices will remain stable.

Check out the full transcript of TVB’s Straight Talk host Eugene Chan’s interview with Paul Chan. 

E. Chan: Welcome to Straight Talk. I'm your host, Eugene Chan. Our guest is Mr. Paul Chan, our financial secretary. Mr. Chan will answer some questions about his recent budget. Welcome, Paul.  

P. Chan: Hi, Eugene, good to see you.  

E. Chan: Right. We've always been told that the government needs to save a surplus for a rainy day. And I'm sure we all agree that day has come. And this fifth wave, in my opinion, qualifies for typhoon Signal Number 10, it's a really huge one. So, I guess this is the reason why your expenditure in the budget is HK$807 billion, which is HK$100 billion more than last year, and almost as high as the record one of HK$820.4 billion in 2020 and 2021. All these have included HK$170 billion of anti-pandemic spending. At the end of this, we're expecting a deficit of HK$56 billion, which is equal to 1.95 percent of our GDP. I mean, it is a lot less than a deficit of HK$257 billion in 2020 and 2021. But it's still a lot of money. Can we afford it? And how much is still left in our reserve? Because we have been spending a lot of money in the last few years and many viewers have shown their concern to me. 

P. Chan: Well, this amount is slightly less than two percent of our GDP, which is very affordable. And at the end of March this year, we are going to have a fiscal reserve of about HK$940 billion. And also considering the hardship experienced by our people and the SMEs. Given the pandemic situation, I think we do need to adopt an expansionary fiscal stance to sustain the economy and provide the much-needed relief to the people and the SMEs. 

E. Chan: Right. You were expecting a deficit last year, but we ended up reporting a surplus of HK$18.9 billion. But some say that you have included the proceeds from the government bonds and movement of funds as a revenue, some say it's distorting the picture. Do you agree? 

P. Chan: Not at all. It is only because the government's account is prepared on a cash basis. And we have set out the process from issuance of bonds, we have set out the amount bringing back from the housing reserve as well as their accrued income of the Future Fund in the account. So, it is very transparent. 

E. Chan: Right. So financial secretary, do you think your projected deficit for this year might turn into a surplus again, so that we can be even happier? 

P. Chan: Well, there are a lot of uncertainties both externally and domestically. So, we have to remain vigilant. Domestically, it very much depends on the pandemic situation, how fast this can be put under control, and the economy to be revived, and how quickly we can revive our travelling with the mainland on a quarantine-free basis, as well as restarting international travelling. And externally, you know, the inflation in the developed economies. And as a consequence, the monetary policy of the US Federal Reserve, as well as European central banks, will have a lot of impact on global fund flows and financial market volatility. And the recent geopolitical situation is also alarming. So, we have to be very careful. 

E. Chan: Yes, so Paul, you know, I'm sure your budget wants to help those people who are most in need. But we know that with the lingering pandemic situation, albeit the ones who are most affected on the lower economic ladder. That means those with lesser savings, and they require the physical presence at their work, that means they can’t really work from home. So, can you explain this budget? Have you favored if at all, these people instead of those people, which is less affected because we want to put in the medicine right at the center of the disease? 

P. Chan: Well, after the outbreak of this wave of pandemic, the government has launched two rounds of anti-epidemic funds, and among the measures, there is a HK$10,000 payment to those unemployed. And in this particular budget apart from offering tax breaks, rates relief, paying an extra half month of CSSA, things like that. We launched a consumption voucher scheme to the order of HK$10,000 each. And the first tranche is to be paid in April, which is meant to be relieving the hardship, particularly to those in grassroots. 

E. Chan: Right. So, you think the budget will be directed for those who are most in need? 

P. Chan: We do our best, and we will continue to monitor the situation. 

E. Chan: You know, when you're doing a budget, I'm sure you have to weigh one hand to another, it must be a very hard sort of balancing act. In the past budget, can you share with the viewer, what is the most difficult decision you have to make to create this budget? 

P. Chan: Well, for this budget, on the one hand, we need to provide sufficient resources to support all our efforts to fight the pandemic. Because this is first and foremost, it is important for the health and safety of our people. And it is the basis upon which the economy can be revived. And we have to be sensitive to the needs of our people at the SMEs to provide them with support. But at the same time, we cannot afford to lose sight of our bigger picture, as well as the medium- to long-term development. That's why apart from the various measures to support SMEs and our people, we have set aside substantial resources to develop our innovation and technology sector to increase our capacity in land supply, in improving transport infrastructure, in order to enable us in the medium- to long-term to sustain growth. 

E. Chan: Right. At the end of the day, what will be your own key performance indicator, your KPI that you have done a good budget for? 

P. Chan: Well, it is important for the people of Hong Kong to keep their confidence at these very trying times, and at the same time, remain well-equipped to continue to grow our economy and to improve on the various funds of the society. 

E. Chan: Right, so financial secretary, but let's move on to some of the work that you've done on the pandemic-related initiatives. You've just mentioned, one of the major ones is the HK$10,000 consumption vouchers, which is welcomed by many. It was quite well-received last year. But there were some hiccups in the beginning as we all recalled, what has been learned from that? And what have you done to address it this time, we can show we don't have the hiccups when you launch it in April? 

P. Chan: Well, last September it was among the elderly, and that particular problem was overcome within days. For this round of voucher, the first tranche is to be paid in April. And given its wide scope of application, I think it would be a welcome relief, particularly for people who have been suffering during this particular time. And we will open it up for additional stored value operators to compete for offering service so that we can provide much more choices for the people of Hong Kong and through their competition to add value to these vouchers. 

E. Chan: You know, Mrs. Regina Ip has commented that we should have more flexibility to handout... actually more cash handout so that people can use it for rent, for those who can't get income. What do you say to that? 

P. Chan: Well, given the very wide coverage, and I mean, the scope of this voucher, actually people can use it to buy their daily necessities, to use it for transportation, to buy anti-pandemic materials. So, I think it is as good as cash. 

E. Chan: Right. And also, Ms Starry Lee also came out... I mean I got to bring all the political leaders' comments and she would say that, have you thought of extending the validity from six to nine months on delivering… when the pandemic situation is in more control, so people actually spent it? What do you say to that as well? 

P. Chan: Well, the first tranche to be paid in April will be given a very long period for people to spend. But the idea is to give people flexibility. So, for those who want to spend it earlier they can, for those who want to use it on a more continuous basis to meet their needs. They can also do so. 

E. Chan: Right, Paul. Another key initiative in your budget is to ban the landlords from terminating their tenancy or even taking relevant legal actions for the tenants who can't pay rent. Is this driving Hong Kong away from the free economy as some have claimed? 

P. Chan: Well, not at all. This is aiming at providing a moratorium period within which both the landlord and the tenant can sit down to help resolve the difficulties that the pandemic situation has brought about. So, it is basically a standstill arrangement and deferring the collection of the rental for three months, we are not taking away their right to collect rent, we're not relieving the tenant’s obligation to pay rent. The whole idea is to provide a breathing space, and an opportunity for the landlord and the tenant to find out mutually acceptable solutions. And we have also made arrangements with the banks to accommodate in the event that because of the deferral of the rental collection, the landlord may have difficulty in meeting the loan repayment schedules. Yes, the banks will also provide a moratorium period. 

E. Chan: Right, financial secretary, you know, Mrs Annie Tse, the Chairman of the Retail Management Association, has always said rent is a major factor in running the business, especially during this difficult time. And she has openly said that she has welcomed that. But to be on the other side. I mean, the rent moratorium was implemented previously in other places and they are accompanied by the landlord's being able to defer their mortgage payments to a bank. Are you going to include this as well, to be fair on both sides? 

P. Chan: Well, as I said, we have talked to the Hong Kong Association of Banks, and we are going to include in the legislation that lenders will offer a moratorium period likewise, to the landlords. 

E. Chan: Okay. Let's move onto another section of your budget that you talked about, that you have allocated HK$16 billion to make Hong Kong to be an international IT hub. And this is in line with the role that was given in the 14th Five-Year Plan of our nation. You are hoping to nurture more startups and attract more talent, but realistically when do you think this can happen? I mean especially how can you attract biotech investors when they probably can't even come to Hong Kong for several more months this year? 

P. Chan: Well, the pandemic situation is short term, we are very confident that we will be able to overcome this shortly. And you know, for this term of government, we have spent and committed over HK$130 billion, in terms of investment in innovation and technology. And the ecosystem for I&T is growing, and we have been observing a lot more young people going to university to study science, engineering. And the entry qualification has been increasing. In the budget, we set aside a very substantial amount of money to assist our I&T development on multiple fronts, including setting up a strategic tech fund to assist not just startups, but unicorns, so that on the one hand, we keep these companies in Hong Kong, help them grow, and also the people of Hong Kong, through this strategic fund, can benefit from their growth. And this fund can also be used to attract foreign research companies and other tech companies to come to Hong Kong, by investing into them, getting a stick on their board, and knowing more the development and direction of that particular sector. That will also be very important, in formulating our I&T policies in those particular respects. 

E. Chan: Yes, Paul, one very specific question from one of the viewers, they were saying that while you have put the money in I&T, but how about not enough has been put in the… doing the contact tracing abilities, how do you reply to that? They said there’s not enough budget on that.  

P. Chan: Oh, not at all. In terms of supporting the pandemic efforts, we have put all resources required. I think earlier on, the difficulties in terms of tracing are limited by other constraints, like whether we have enough capacity, in terms of related talent. 

E. Chan: Let’s move on to another question, that with such stringent travel restrictions in place, one of the concerns is that some of our expatriates are leaving Hong Kong because we have some figures from a relocation firm, saying that the ones coming in and going out is 1:3. So 3 people are moving out while one is coming back. So that is not saying that we must have expatriates, but it does have some hardship in finding talent from overseas. So, even recently the American Chamber of Commerce’s president has left our city. So, can we still maintain our status as the top three international financial center in your view? Although it’s a short-term pandemic? 

P. Chan: Well, we are a leading international financial center, no doubt about it. The pandemic situation is short term, this challenge we have to fight together. I am keenly aware of the situation, the difficulties facing expatriates and their families. But at the end of the day, I think it is important for us to put this pandemic situation quickly under control, and to be able to revive our quarantine-free traveling with the mainland first, and then gradually with the international community, when we are ready, in terms of increasing our vaccination rates, in terms of acquiring the drugs for the treatment of COVID. So, to me, the business opportunity of Hong Kong, particularly in the context of the GBA (greater bay area) and the mainland is very promising, and this will remain very attractive to foreign companies and expatriates.  

E. Chan: Right. Let me quote from one recent survey, whereby 48 percent of the respondents consider Hong Kong to be still competitive as a global hub, and 80 percent said Singapore was the biggest threat to the city because of its strategic location and their pro-business approach. However, there was one disturbing comment that I felt was that some felt that the Hong Kong government didn’t really care if they have left. So, what is the government’s position on the expatriates? 

P. Chan: Hong Kong is an international city, we welcome people from all over the world to come here to do business, to share our prosperity, and to work together, to bring Hong Kong to another level, no matter it is in financial services, or innovation and technology, or arts and culture. The COVID-19 situation is short term, we will be able to overcome this. And Hong Kong, under the “one country, two systems” arrangement remains a free market, a free city. 

E. Chan: Following on from the last question, while the recent talent flight may arguably provide some upward mobility of our local talents. Do you think our existing talent and our education system do beat up for the increasing demand trend internationally, while Hong Kong has to be an important financial hub? 

P. Chan: We have observed a brain tide back in the lead up to 1997. Hong Kong people are very smart and agile, I think. On the one hand, we will continue to improve, continue to educate ourselves, in terms of… better equip ourselves for various challenges and career opportunities. I have every confidence in the people of Hong Kong. 

E. Chan: Right. So, Paul, the term we always use is “geopolitical tension” now, spooking our global economy, and with the uncertainties of the current Hong Kong COVID, which hopefully will end in a few months’ time as you just said. How confident are you with Hong Kong achieving your forecast of 2-3.5% of GDP growth? Bearing in mind, this is quite a wide range, and you have a history of several revisions of forecasting in recent years. 

P. Chan: Well, you know, Hong Kong is a small open economy. We have to face challenges domestically and externally. Our experience last year, as you may have observed, when the pandemic situation is under control and people come out to spend money, economic activities to be resumed, the recovery can be very fast. And last year, we were not able to reopen the border with the mainland on quarantine-free basis. We still registered a growth of 6.4%. This year with concerted effort, we have confidence that on the pandemic fund, we will move fast, put it under control, give us the opportunity and prepare us for revival of traveling with the mainland. And with the consumption voucher to be launched domestically we have the economic engine to grow faster. And externally, the US and Europe, although they are facing inflation challenge, but at the same time the forecast is that they will remain on the growth track. And the mainland is still on very strong growth, so external environment barring unforeseen circumstances is also favorable. That is why I will put up this GDP growth range, we think this is achievable. 

E. Chan: You also have lifted some of the mortgage requirement, I mean people will be able to afford the same amount of property with a lesser deposit, which let me tell you, a lot of viewers have expressed to me that they welcome that. However, is it against the government’s intention to keep the affordability to a more reasonable level? Would it fuel the property prices to go up again further? 

P. Chan: Well, this relaxation in mortgage insurance is to provide people with more options, so that for those who can afford the monthly mortgage repayment but cannot afford the substantial down payment, would be better able if they want to acquire a flat for their own use.  

E. Chan: So, you don't think it will push up the price? 

P. Chan: I don't think this would have any significant impact on the property price, given number one, the property market at the moment is quite soft, the interest rate is expected to be going up, people are very cautious. The completion in the coming 5 years is about 19,000, in order of 19,000 units a year, which is 14% higher than the previous 5 years average. And the first-hand supply in the coming 3-4 years is about 98,000, which is the highest in recent years. So given all these situations and taking stock off our experience in the previous relaxation back in 2019, we do think this is the right moment to relax a little bit, so that people know of the options available to them, but at the same time can take their time, in terms of whether to buy or not. 

E. Chan: You mentioned about the government having the expansion in fiscal measures, that is quite different to the prudent approach we had. Are you saying that the multiple effects of our economy from the private sector have gone down drastically, yes or no? 

P. Chan: Actually, as you can observe, at the moment, the economic situation is very worrying. So, I think we need to provide the support and inspire the confidence. 

E. Chan: Right. Good luck to your work and thank you, Financial Secretary Paul Chan, for sharing with us your rationale behind the budget. 

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