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HK leaders accused of spending 'peanuts' to save deteriorating economy
AS Hong Kong's leaders hunt for a political solution to the months-long impasse with protesters, officials are trying to prop up the deteriorating economy with fiscal spending.
The problem, economists say, is they're doing it on the cheap and packaging the fiscal measures in ways that won't meaningfully help the city's economy now, or in the long run.
The fiscal stimulus announced by Financial Secretary Paul Chan since the start of protests in June - HK$19 billion (S$3.3 billion) in August followed by about HK$2 billion in October - amounts to less than one per cent of Hong Kong's economy, according to Alicia Garcia Herrero, chief economist for Asia-Pacific region with Natixis SA.
"The so-called economic stimulus is literally peanuts for an economy entering a big recession," she said.
Hong Kong's annual output stood at about US$363 billion at the end of 2018, according to World Bank figures. The city had about US$150 billion in fiscal reserves at the end of March.
"They should have embarked on a much-bigger fiscal stimulus introducing progressive measures to improve income inequality," she said.
This is the most recent example of a strategy that worries economists and experts - officials doling out handouts while failing to employ plentiful resources to more broadly address structural problems like a chronic lack of living space and limited social support.
While the political crisis and recession provide Chief Executive Carrie Lam with a chance to address immediate needs and long-term issues, the government is being criticised for again coming up short on both fronts.
"Hong Kong is not known for its stimulus spending; in fact, the government has often prided itself in maintaining low spending and less intervention," said Mathew Wong, assistant professor at the Education University of Hong Kong.
The city's low-tax, low-spending philosophy has been seen for decades as a virtue, and has delivered a surplus every year since 2005.
Hong Kong's annual spending on social welfare also lags its peers. The average country in the Organization for Economic Co-operation and Development spends the equivalent of just over 20 per cent of its GDP on social expenditures alone.
Hong Kong's entire city budget equals about 22 per cent of the GDP, with spending on education, social welfare and health accounting for just less than half that total.
It's "very likely" Hong Kong will miss its full-year growth target of zero to one per cent, Mr Chan recently told reporters.
There's much debate over what to do next.
"Obviously what the government needs to think now is how to launch some stimulus," said Raymond Yeung, chief economist for greater China with Australia & New Zealand Banking Group. "The Hong Kong government has the firepower financially to support the retail, hospitality sectors."
The city's shopping malls and restaurants have been among the most hard hit, with the jobless rate in food and beverage service jumping to a six-year high.
Some in the private sector have already taken matters into their own hands. Billionaire Li Ka-shing promised HK$1 billion in emergency support in October to help small and medium-sized businesses.
A resolution to the US-China trade war, which has had a significant impact on Hong Kong's trade exports, may also give the economy a boost.
The two sides have agreed to roll back tariffs on each other's goods in phases as they work toward a deal, a Ministry of Commerce spokesman said in Beijing, the latest sign yet of a potential detente.
China's key demand since the start of negotiations has been the removal of punitive tariffs imposed by President Donald Trump.
Stocks rallied in Hong Kong on the news, with the Hang Seng Index rising 0.6 per cent while US stock futures jumped. The yuan strengthened.
Johanna Chua, Citigroup's chief economist for Asia Pacific, sees the third quarter as a possible bottom for the economy.
"The key thing is the ability to maintain law and order, rule of law and maintain some amount of stability," she told Bloomberg Television. "Confidence, it takes a while to rebuild that." BLOOMBERG