Hong Kong Finance Chief Warns of More Challenges

By Cathy Chan

Oct. 18 (Bloomberg) -- Hong Kong Financial Secretary John Tsang warned of further economic challenges ahead for the city amid global financial turmoil, company closures and investment losses.

``The financial crisis will have a considerable economic impact on the economy, and people in Hong Kong should be ready for the challenges,'' he told reporters today after officiating at a ceremony. ``Still, Hong Kong's fundamentals and its system are healthy and our economy remains very strong.''

Tsang's comments came after three Hong Kong retailers and a toymaker collapsed within two weeks and as tightened credit conditions make it more difficult for smaller companies to refinance debt. Hundreds of Hong Kong investors protested in the streets last week over losses on so-called minibonds guaranteed by bankrupt Lehman Brothers Holdings Inc.

``We expect Hong Kong's economic activity will be very slow but still outperform other counties in Asia in the next six months,'' said Kenny Tang, director of Tung Tai Securities Co. in Hong Kong. ``China will contribute to Hong Kong's meager growth looking forward, and the city still has a solid financial basis, backed by its strong reserves and lack of foreign debt.''

Tai Lin Radio Service Ltd., a 60-year-old Hong Kong electrical appliance retail chain, was forced to close yesterday after accumulating HK$100 million ($13 million) debt.

Funds Frozen

U-Right International Holdings Ltd., operator of about 600 clothing outlets in the city and in China, had funds frozen after it was unable to meet a demand to pay HK$850 million of debt. Hong Kong's High Court on Oct. 6 appointed Deloitte Touche Tohmatsu as liquidator of the Hong Kong-listed company.

Smart Union Group Holdings Ltd., a Hong Kong-listed contract toymaker, said yesterday the city's High Court appointed two liquidators to take control of its assets. The company closed two factories in China's Guangdong province, Shanghai-based National Business Daily reported.

``The retail industry is definitely one that will be severely affected by the ongoing crisis,'' Tsang said. ``The health of small-to-medium-sized enterprises in Hong Kong is very important to us.''

Government Plan

The Hong Kong Association of Banks, which includes HSBC Holdings Inc. and BOC Hong Kong (Holdings) Ltd., agreed yesterday to a government plan to buy back Lehman's minibonds at market prices, after consumer allegations that sellers misrepresented the risks involved in the securities.

The Hong Kong Monetary Authority, the city's de facto central bank, said yesterday it referred to the Securities and Futures Commission 24 cases related to sales of the Lehman- guaranteed products.

``We're very happy about the banks accepting our buyback suggestion,'' Tsang said today. ``We will continue investigating some of the false-selling cases and establish a mechanism to facilitate dispute settlements between the banks and the investors.''

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net.