Hong Kong faces delays in giving cash away with virus hitting economy

[HONG KONG] Hong Kong was ahead of the world when in February it announced a handout of almost US$1,300 to residents suffering from an recession worsened by the coronavirus. By the time the money arrives, it may be too late to undo the damage.

While the US plans to send cheques to individuals as soon as this month as part of a US$2 trillion relief package and other countries roll out payouts, Hong Kong's cash drop isn't expected until the third quarter or even later.

Virus control measures are shuttering more businesses and accelerating job losses in the Asian financial hub, with the latest regulations involving a two-week closure of bars intended to curb a second wave of the outbreak locally. This comes after the economy slid into recession last year, battered by months of anti-government protests.

While once there was talk of how the payment could support discretionary spending at Hong Kong's restaurants and shops, now it's looking more like a form of basic income support.

There had been "a lot of excitement around the Hong Kong cash handout", said Rory Green, an economist at TS Lombard. "We view it as more of a tax break, and one that will come too late to support the economy through virus-related disruption."

In a blog post on Sunday, Financial Secretary Paul Chan said Hong Kong could take six months to reverse the economic effects of the pandemic. Mr Chan again called on landlords and big developers to take on more "social responsibility" by responding to public demands to reduce rent. He also warned individuals and businesses to make the necessary arrangements to weather the next six months.

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He said the government will offer "comprehensive" aid to protect businesses and jobs, though Mr Chan did not provide details on what those measures would be.

For Jason Lam, a 32-year-old chef in Tsim Sha Tsui who has been asked to take repeated unpaid leave over the past two months, the cash can't come soon enough.

"That HK$10,000 (S$1,855) will be very helpful because I don't have enough income to cover my spending," he said. Chef Lam signed up for a savings plan last year and is now struggling to make the monthly payments. "This has bothered me to death. I don't know what will happen in April now with the new social-distancing rules further dragging down our business."

The escalating global pandemic is the latest blow to Hong Kong's economy. It is forecast to struggle in a range of -1.5 per cent to +0.5 per cent growth this year, Mr Chan forecast in the budget released in late February.

On paper, Hong Kong has the right mix of circumstances to make such a cash drop work, which is a reason why the city was one of the first in the world to announce a general payout in the current crisis. The government has plenty of cash on hand given a fiscal reserve of more than HK$1 trillion, and experience with past handouts.

But amid a broader economic support plan worth HK$120 billion, the Hong Kong government says the direct payment needs technical and legal work, and that is moving more slowly than the epidemic.

"It takes time to carry out the required preparatory work," the Financial Services and the Treasury Bureau said in a March 24 email. "Our current target is to strive to commence registration in early July and start making payment during summer vacation."

There are plenty of boxes that still need to be checked off, including spending approval from the Legislative Council for the wider budget, which is not expected before the end of April. While officials are waiting, they have begun developing computer systems to handle the programme, discussions with partners such as banks on details and formulating a publicity plan, the department said.

An April 3 brief from the Legislative Council Secretariat, which provides support to council members and the public, raised several concerns about the handout including the amount of time it will take compared with other programmes in Macau and Singapore based on past experience, high administrative costs and the non-targeted nature of eligibility.

"It is not clear whether the cash can reach the needy soon enough to soothe their plight," the report said.

OTHER COUNTRIES

Aside from the US programme to send out cheques, other countries are planning or have discussed direct cash payments to citizens, though many are running into complications of their own.

Thailand opened registration at the end of March for a handout programmes to cover about nine million people. However a third of Thailand's population, or some 22.9 million people, have already signed up, meaning many will be disappointed.

Japan's ruling party has proposed spending more than 10 trillion yen (S$132.17 billion) on handouts to the public in a combination of cash, subsidies and coupons. A decision on the handout format is complicated by concern over repeating the perceived failure of direct payments made during the global financial crisis.

Italy is preparing an emergency handout for workers in the country's underground economy, while Peru has begun distributing cash to the country's 2.7 million poorest families. Singapore also is moving slightly faster than Hong Kong, having announced a one-time payment in March that's due to land in August.

Hong Kong distributed checks of HK$6,000 to the populace in 2011, though that occurred when the economy was booming and the need for the money less urgent. The plan was announced in March, with registration beginning at the end of August and payments by early November, according to the government. The plan ultimately took about 21 months to make payments to six million people, the LegCo brief said.

Now, "the cash handout is more a social insurance in the crisis rather than fiscal stimulus", said Aries Wong, lecturer at Hong Kong Baptist University's School of Business. "Its effect depends on the portion of cash that would be re-spent by households."

In an interview with Bloomberg TV in early March, Mr Chan said he hoped residents would support Hong Kong by spending, and encouraged businesses to come up with incentives for them to do so.

Vivian Leung, a 33-year-old teacher in Hong Kong, said her family and friends are thinking about using the money to buy goods such as face masks, sanitiser and cleaning equipment to fight the coronavirus.

"All those things, for the past two to three months, pretty much makes up HK$10,000," she said. "Are we excited? It's better than nothing."

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