Overview

• As Hong Kong is a free and open economy, it has inevitably been affected by the global economic recession stemming from the US subprime mortgage meltdown in late 2008, resulting in a sharp fall in exports and hence dragging the overall economic performance.

• However, with sound fundamentals, a strong regulatory framework, a robust Exchange Fund, a production base and market on the Mainland and a strong backing from the Central Government, Hong Kong’s economy is well equipped to withstand the downturn.
   
• Hong Kong is known for its resilient and hardworking spirit and will endeavour to turn crisis into opportunity by vigorously pursuing economic development in areas such as financial services, cross-boundary integration, infrastructure projects, creative industries and scientific research.
   
• Hong Kong will continue to uphold the principle of “Big Market, Small Government” in promoting economic development. Nevertheless, the government should be prepared to intervene in a timely and decisive manner in order to safeguard the interest of the public.

• Hong Kong had introduced a basket of targeted stimulus measures to tackle the financial crisis. The strategy was based on a three-pronged strategy: stabilising the financial system; supporting enterprises; and preserving jobs. The discretionary relief measures announced by the Government since 2008 amounted to HK$87.6 billion, equivalent to about 5.2 per cent of GDP.

• The International Monetary Fund (IMF), in its Staff Report on Hong Kong released on December 3, 2009 recognised Hong Kong’s efforts to aid economic recovery.
   
• The Hong Kong economy has entered the nascent stage of recovery, but the global economic outlook is still subject to considerable uncertainties. The Government is mindful of the prevailing risks in the external environment and will continue to adopt necessary measures to sustain economic growth.
   
• Development of Islamic finance in Hong Kong is a long-term policy goal of the HKSARG. The current focus is to promote the development of an Islamic bond market in Hong Kong, with a view to increasing the breadth and depth of the local bond market, diversifying Hong Kong’s financial market and consolidating Hong Kong’s status as an international financial centre.
   
• In the first eleven months of 2009, funds raised through IPO on HKEx totalled HK$185.3 billion, which, according to market information, makes Hong Kong rank first in the world.

Measures taken by the Hong Kong Special Administrative Region Government to Combat the Economic Crisis

To assess the impact and address the challenges:

⇒ The Task Force on Economic Challenges  (TFEC) was set up in October 2008 to monitor and assess the impact of the financial crisis on Hong Kong’s economy and propose specific options to address the challenges.

⇒ TFEC, dissolved in June 2009, came up with a host of proposals to develop the six areas where Hong Kong enjoys clear advantages. They are: educational services, medical services, testing and certification, innovation and technology, cultural and creative industries, as well as environmental industry. The Chief Executive in his 2009-10 Policy Address announced the Government’s strategy to promote these six industries.

To maintain a healthy and stable financial system:

⇒ On 30 September 2008, the Hong Kong Monetary Authority (HKMA) introduced five temporary measures to provide liquidity assistance to banks in need. Following the introduction of these measures, the interbank market stabilised and local interbank interest rates declined.

⇒ After the expiry of these measures on 31 March 2009, the HKMA decided to incorporate two measures, foreign exchange swap and term repo, into its ongoing market operations to offer HKD liquidity assistance to banks, if needed, on a case-by-case basis.

⇒ On October 14, 2008, two pre-emptive measures were introduced to strengthen confidence in Hong Kong’s banking system:

(i) use of the Exchange Fund to guarantee repayment of all Hong Kong-dollar and foreign-currency deposits held with all authorised institutions in Hong Kong, including branches of overseas institutions; and
(ii) establishment of a Contingent Bank Capital Facility to make available additional capital to locally incorporated licensed banks when necessary.
The measures will remain in force until the end of 2010.

⇒ We are strengthening our regulatory framework to give investors additional support and protection as they engage in financial services.  We have drawn up an Action Plan which sets out various recommendations to strengthen investor protection in every aspect, from investor education, authorisation of investment products, disclosure requirements, sales practices, conduct of intermediaries to financial disputes resolution.

⇒ We are coordinating efforts by HKMA and the Securities and Futures Commission (SFC) and reviewing progress of the implementation of the Action Plan on a regular basis.

⇒ The various improvement measures that can be implemented by registered institutions quickly have been introduced by September 2009. Public consultation on proposals to enhance regulation of intermediaries selling investment products to the public was launched by SFC in September 2009.  The Government will also consult the public on the proposals to establish an investor education council and a financial dispute resolution centre at a later stage.

To support small and medium-sized enterprises (SMEs):

⇒ The credit crunch has caused great difficulties among SMEs. A time-limited HK$100 billion Special Loan Guarantee Scheme was launched on 15 December 2008 to provide 70 per cent guarantee for loans granted by participating lending institutions to Hong Kong companies.  In mid-June 2009, the scheme was enhanced, including increasing the Government’s guarantee ratio from 70 per cent to 80 per cent, increasing the loan ceiling for each enterprise from HK$6 million to HK$12 million, etc.

⇒ The Government has also injected an additional provision of HK$1 billion into the SME Export Marketing Fund and expanded its scope of fundable items.  These could provide SMEs with greater flexibility in making use of the fund for tapping markets outside Hong Kong, broadening their customer base and attracting more orders.

To provide relief to the public:

⇒ In the Budget 2009 delivered on February 25, and on May 25, the Government announced a series of revenue and expenditure measures to provide relief, e.g. waiving rates, paying two months’ rent for public housing tenants, waiving the business registration fee and license fees of hard hit industriesone year, etc.

To boost employment:

⇒ 60 000 jobs would be provided through infrastructure projects, advanced recruitment of civil servants, creation of temporary positions and expediting minor works in the 18 districts.  A further 62 000 jobs and internship opportunities will be provided through various programmes in three years...

⇒ To step up co-operation with the Pearl River Delta (PRD) Region

⇒ To strengthen co-operation with Guangdong, take the lead in building a Hong Kong-Shenzhen international metropolis as well as intensify economic integration with the PRD.

⇒ To continue public spending so as to stimulate domestic demand

⇒ The Government has adopted a counter-cyclical fiscal policy and implemented measures to stimulate demand.

Measures taken by Central Government

To strengthen cross-border cooperation in financial services

⇒ On 20 January 2009, the People’s Bank of China and the HKMA have signed a currency swap agreement which aims at providing liquidity support of up to Renminbi (RMB) 200 billion (or HK$227 billion) to the operations of commercial banks in each other's jurisdiction in case of need. The arrangement can also help promote the development of RMB-denominated trade transactions between Hong Kong and the Mainland.

⇒ Further to the Central Government’s announcement in April 2009, two Mainland subsidiaries of Hong Kong banks, namely HSBC (China)

⇒ Company Limited and The Bank of East Asia (China) Limited, launched their RMB bond issues in end-June 2009.  The PRC Ministry of Finance also launched its first issuance of RMB sovereign bonds in Hong Kong totalling RMB 6 billion in September 2009.

⇒ To facilitate borrowing by Hong Kong enterprises, it was also announced in April 2009 that enterprises will be allowed to use their assets in Hong Kong as collateral in securing loans from Hong Kong banks on the Mainland, initially in Shanghai and Guangdong.

⇒ The pilot scheme for using RMB to settle cross-border trade transactions commenced operation on July 6, 2009:

• To further open up the Mainland services sector to Hong Kong service providers through Supplement VI to the CEPA;
• To enhance economic co-operation between Hong Kong and the PRD in accordance with the “Outline of the Plan for the Reform and Development of the PRD.”

Latest economic performance

• The Hong Kong economy improved further after a strong rebound during the second quarter, leading to a further tapering of the year-on-year decline in real GDP to 2.4 per cent in the third quarter.  This was led mainly by the further improvement in the domestic sector, offsetting the drag from the weak external demand.

• Unemployment rate showed the first decline in the third quarter of 2009 since the global financial crisis, and fell further to 5.2 per cent in August-October 2009.

• Hong Kong’s financing capability has not been weakened despite the financial crisis. Inward investment remains satisfactory. Hong Kong still keeps its edge in the securities market as well as its status as an international financial centre.
   
• As at end-September 2009, Hong Kong has a fiscal reserve of HK$429.6 billion, equivalent to 17 months of government expenditure. Excluding outstanding bonds fully funded under the Bond Fund, Government debts amounted to HK$12 billion.
   
• In November 2009, Moody’s has decided to upgrade Hong Kong’s long-term foreign-currency and local currency rating outlook to “Positive” from “Stable”, with ratings at “Aa2”. The upgrade has reflected Moody’s recognition of Hong Kong’s capability to sail through the global financial crisis smoothly.