Decoding China: The economy of Hong Kong in the first year of a new era
Updated 16:02, 01-Jul-2023
Paul Chan
Decoding China: The economy of Hong Kong in the first year of a new era

Editor's note: Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era is China-centered, and internationally applicable; it caters to the present and is geared towards the future. In CGTN's Decoding China series, domestic and international high-profile officials and experts from various fields share their experiences and talk about Chinese governance and its global implication. In the second installment, Paul Chan, the Financial Secretary of China's Hong Kong Special Administrative Region (HKSAR) government, looks at the work of the current HKSAR government since it took office a year ago, and examines how Xi's Thought guides the work of the HKSAR government.

Time really flies and we have come to the end of June. It has been a year since China's Hong Kong Special Administrative Region (HKSAR) incumbent government took office. Over the past 300 days or so, we have gone through ups and downs with our fellow residents, witnessing how our whole society emerged from the COVID-19 epidemic and returned to normalcy, with smiling faces around following the lifting of the mask mandate. From the Global Financial Leaders' Investment Summit and Hong Kong Sevens held at the end of last year, to the full resumption of normalcy earlier this year, followed by the "Happy Hong Kong" Gourmet Marketplace series and the recent return of the giant Rubber Duck to Victoria Harbor after a decade, these events have brought happiness and good memories to people of all ages.

Looking back at the past four quarters, the economy shrank by over 4 percent in the third and fourth quarters of last year due to the worsening external environment and tightening financial conditions, but a series of HKSAR government's counter-cyclical measures had a stabilizing effect on the economy. Under the leadership of Chief Executive John Lee Ka-chiu, we precisely adjusted our anti-epidemic measures, effectively controlled the epidemic, and achieved full resumption of normal travel in early February this year. This supported a significant improvement in the economy in the first quarter of this year, in which a year-on-year growth of 2.7 percent was registered. Other measures, including the distribution of consumption vouchers, tax and fee waivers and reductions for enterprises, and the extension of the 100 percent loan guarantee scheme for small and medium-sized enterprises, have also effectively boosted the momentum of economic revival. The unemployment rate in Hong Kong has also declined from 4.7 percent in the second quarter of last year to the current 3.0 percent. Inflation has remained generally moderate. The prices and trading activities of the residential property market have both rebounded moderately in the first five months of the year. It can be said that the end of the epidemic and full resumption of normal travel have enabled various economic and business activities to quickly recover. The year-on-year growth of retail sales value accelerated from only about 1 percent in the second half of last year to nearly 22 percent in the first four months of this year. Fixed investment in the first quarter of this year also increased substantially by nearly 6 percent in real terms over a year earlier.

However, Hong Kong's merchandise exports are still under pressure, recording a double-digit year-on-year decline in value terms in the first four months of this year, mainly due to the further deterioration of the global economy, geopolitical tensions and intense competition among economies. These challenges are expected to continue for the rest of this year.

While we cannot control the external environment, we are pressing ahead at full steam with local development.

The epidemic has brought many challenges in the past few years, and we have decisively adopted an expansionary fiscal policy and launched large-scale counter-cyclical measures to overcome various short and medium-term challenges and risks. We have also promoted medium and long-term development comprehensively with a perspective that goes beyond economic cycles. We must seize the historic opportunities brought by the development of our country, and take a holistic view and plan for the long term by taking into account international perspectives and Hong Kong's position. Through better integration of a "capable government" and "efficient market" alongside innovations in policies and mechanisms, we can enhance economic development momentum, explore and cultivate new economic growth areas, and strive to boost the productivity and competitiveness of traditional industries.

As regards expanding capacity, the incumbent HKSAR government strives to increase land supply by enhancing speed, quantity and efficiency. It has identified 32.8 square kilometers of land, which is sufficient to meet development needs in the next 10 years. This area - 32.8 square kilometers - is roughly double the size of Tseung Kwan O. Of these supplies, around half come from the Northern Metropolis and the Kau Yi Chau Artificial Islands.

For housing, we have identified sufficient land for the provision of about 360,000 public housing units, which will be able to meet the demand for public housing in the next 10 years. While expediting housing construction, we have introduced light public housing and transitional housing with a view to providing more options for grassroots residents who are inadequately housed and yet to be allocated public rental housing. We also endeavor to increase the supply of subsidized sale flats through various means.

On transportation, the Tseung Kwan O-Lam Tin Tunnel and Cross Bay Link were commissioned at the end of last year, providing a more convenient commuting option for the Tseung Kwan O district. The Tung Chung Line Extension of the local railway operator MTR commenced construction at the end of May, which is the first railway project to be built under the incumbent HKSAR government. Many planned projects will also begin in earnest, amongst which the construction of Oyster Bay Station, Tuen Mun South Extension, and Kwu Tung Station of the Northern Link will commence this year.

A bigger and stronger international financial center

Hong Kong is where international and Chinese mainland's capital, talent and projects converge. We are a platform for efficient financing and capital flow, and a testing ground for financial innovation. In the past year, Hong Kong, as an international financial center, has seen its business areas becoming wider, the product suite enriched, the sources of capital more diverse and the cooperation with the mainland, especially the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), closer.

A view of Golden Bauhinia Square in south China's Hong Kong, May 6, 2023. /CFP
A view of Golden Bauhinia Square in south China's Hong Kong, May 6, 2023. /CFP

A view of Golden Bauhinia Square in south China's Hong Kong, May 6, 2023. /CFP

On the stock market, exchange-traded funds (ETFs) were included under Stock Connect, while stocks of international enterprises that are listed in Hong Kong and fulfill specified conditions were included under Southbound trading. Together with the launch of "HKD-RMB Dual Counter Model" and the introduction of a listing channel for pre-profit specialist technology companies, they have enriched the choices of Hong Kong stocks for investors, and are also conducive to enhancing the attractiveness to capital and vibrancy of Hong Kong stocks.

On bond issuances, in the first half of this year, we made two triple-currency green bond offerings covering U.S. dollars, euro and RMB tranches. Both offerings marked the largest environmental, social and governance (ESG) bond issuance in Asia. In addition, we made the world's largest retail green bond issuance last year, as well as the world's first government-tokenized green bond issuance in February this year, demonstrating our commitment to promoting financial inclusion and innovation.

Hong Kong's banking system remains resilient, with total deposits (including Hong Kong dollar and foreign currency reserves) having increased by 2 percent compared to mid-last year, to more than HK$15.5 trillion (about $1.91 trillion) as of end-April. The capital adequacy ratio also stood at 20.8 percent, well above the 8 percent international regulatory standard.

On widening the sources of capital, since the issuance of the Policy Statement on Developing Family Office Businesses in Hong Kong and the organization of the Wealth for Good in Hong Kong Summit, Invest Hong Kong has received close to 100 inquiries from family offices worldwide, with one-third having indicated an interest in setting up in Hong Kong.

On cooperation with the GBA, we jointly promulgated 18 measures for Supporting the Linked Development of Shenzhen and Hong Kong Venture Capital Investments in Qianhai with the Shenzhen Qianhai Authority to facilitate preferential policies for the Hong Kong private equity industry. We also signed the "Agreement on Enhancing Hong Kong-Guangdong Financial Cooperation" with the Guangdong provincial government to deepen financial cooperation between Guangdong and Hong Kong.

On financial infrastructure and innovation, the Hong Kong Monetary Authority is exploring the application of e-HKD. The Multiple Central Bank Digital Currency Bridge Project has moved beyond experimentation and entered into the pilot phase. In addition, the cooperation with the People's Bank of China on e-CNY cross-boundary retail payments has entered into the second phase of technical testing, with the aim of enabling the use of the Faster Payment System to top up e-CNY wallets in the future. In October 2022, the Commercial Data Interchange was formally launched. So far, it has facilitated more than 3,100 small and medium enterprise loan applications and reviews, with an estimated total credit approval amount exceeding HK$2.8 billion.

We must open up new tracks to achieve a leap in growth. The incumbent HKSAR government proposes to develop Hong Kong into an international center for green technology and green finance, hoping to seize a leading position in this huge international new market by leveraging Hong Kong's advantages in these two areas. This seeks to capitalize on Hong Kong's strengths to serve the country's needs and respond to the increasing international demand. Statistics show that in the next 30 years, the Asia-Pacific region will require $66 trillion in climate investment, and there is a massive need for upgrading corporate equipment for different industrial chains. This demonstrates the immense demand for green technology and green finance.

International innovation and technology center makes strong progress

Over the past year, we have made tremendous efforts to promote research as well as transformation and application of research outcomes in innovation and technology (I&T) at full steam, through new policies, new initiatives and new modes.

The new initiatives announced in the chief executive's policy address last year in attracting businesses and talents are being implemented. These are strong policy measures to attract leading I&T companies with cutting-edge technologies to set up in Hong Kong; and encourage more talents to work and live here. By doing so, we are creating vibrant ecosystems and industry clusters. As regards the Hong Kong Investment Corporation, it has received investment proposals from various enterprises and is already engaging with them.

It can be said that the development of I&T in Hong Kong has gained wider recognition and support in the community. It is moving towards a phase of accelerated progress.

At the meeting celebrating Hong Kong's return to the motherland last year, President Xi Jinping set out in his important speech four proposals, which have become the guiding principles of our work in the past year and beyond. The HKSAR government spares no effort to pursue economic growth and improve people's livelihood through various policies and measures. Indeed, we are facing numerous challenges and difficulties in the course of development, and it takes time to resolve the various problems accumulated over the years. Nevertheless, as the Chief Executive has put it, the whole HKSAR government team, the executive authorities and legislature, and different sectors of the community have become all the more united, and our economy is moving in a positive direction. As long as we continue to strive for progress and expedite development, Hong Kong's future will certainly be better and brighter.

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