Hong Kong’s Financial Secretary aims for economic revival in upcoming budget

Paul Chan

27th February 2024 – (Hong Kong) Financial Secretary Paul Chan is set to announce key fiscal measures in the forthcoming budget presentation. This Wednesday, Chan will outline strategies anticipated to ease property market constraints, rejuvenate tourism, and entice investment into the city’s capital markets, aligning with insights from analysts and economists.

Despite the fiscal deficit concerns, Chan is expected to eschew cash handouts, a decision attributed to budgetary limitations. Analyst Willer Chen of Forsyth Barr Asia Ltd. predicts that property transaction curbs will certainly be relaxed, and suggests increasing tobacco taxes could bolster government revenue.

Hong Kong’s confidence has diminished, facing unprecedented challenges in its property sector, diminishing freedoms due to national security laws, and an economy struggling to recover post-pandemic. The city temporarily ceded its position to India as the world’s fourth-largest stock market, a reflection of capital withdrawal from the Chinese markets.

Stephen Roach, former chair of Morgan Stanley Asia Ltd., expressed a bleak outlook, suggesting that Hong Kong’s era of prominence may be over unless China amends its economic policies and grants the city greater autonomy.

Chan will likely address the pressure from the Real Estate Developers Association of Hong Kong and local politicians to abolish additional property taxes. JPMorgan Chase & Co.’s analyst Karl Chan anticipates a reduction in stamp duties, which could galvanise the flagging market. However, he cautions that such measures might offer only a temporary spike in transaction volumes without reversing the downward trend in property values.

Facing a projected second consecutive year of budget deficits, with estimates ranging between HK$110 billion to HK$130 billion for the fiscal year 2023-2024, Chan emphasised a more prudent and effective utilisation of limited public resources. Earlier property purchase tax and stamp duty cuts have been overshadowed by high-interest rates and a robust local dollar, pegged to the US dollar

To boost tourism, plans for monthly fireworks, drone shows, and seasonal activities are reportedly in the pipeline. These initiatives could incentivise travellers to extend their stays, potentially benefiting companies like Sa Sa International Holdings Ltd., Chow Tai Fook Jewellery Group Ltd., and Cathay Pacific Airways Ltd.

With business confidence shaken, Chan’s budget is keenly awaited as an opportunity to address concerns and demonstrate the government’s commitment to the financial sector’s integrity. This coincides with a significant visit from Beijing’s representative to the semi-autonomous region and during consultations for a new security law that has unsettled the business community.

As Hong Kong’s economy emerges from a contraction in 2022 with modest growth, the impetus for additional stimulus seems reduced. The city’s ties to mainland China through the Greater Bay Area project continue to be a focal point for economic integration, with the aspiration to compete with global powerhouses like Tokyo and Silicon Valley.