Hong Kong Fights Slump With HK$16.8 Billion Stimulus

By Theresa Tang and Kevin Hamlin

May 27 (Bloomberg) -- Hong Kong unveiled HK$16.8 billion ($2.2 billion) of tax cuts, fee waivers and spending to spur growth and cushion residents from the deepest global slump since the Great Depression.

The government may “do something further” if conditions worsen, Financial Secretary John Tsang said at a briefing in the city yesterday.

The latest measures push the government’s stimulus and relief spending since 2008 to HK$87.6 billion, or about 5.2 percent of gross domestic product, Tsang said. Some economists say the city needs to spend more, faster after first-quarter economic growth shrank by the most since at least 1990 on plunging exports.

“It’s too little, too late,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong, adding that the city had needed at least HK$40 billion of extra measures.

A waiver on salary tax payments will be raised to HK$8,000 for 2008-09 from HK$6,000, Tsang said. Fees for business registrations and for entertainment and restaurant licenses will be dropped for a year. The government will waive property rates for two more quarters.

“The public had expected giveaways that would deliver a more immediate stimulus to the economy,” said Denise Yam, an economist with Morgan Stanley in Hong Kong. The package “fell short of radical,” she said, adding that the government could tap into “ample fiscal resources.”

Stocks Gain

Hong Kong’s fiscal reserves stood at HK$494.4 billion at the end of March and the city had a HK$1.4 billion budget surplus for the year ended March 31, rather than the deficit the government had forecast.

The benchmark Hang Seng Index, which has gained 21.3 percent this year, rose 2.7 percent at 10:59 a.m. in Hong Kong.

Tsang predicted that the second half of this year will be better than the first half and the city may return to economic growth in 2010. He cautioned that uncertainties include the world economy and swine flu.

The government has forecast a full-year contraction of as much as 6.5 percent in 2009, which would be the largest decline since data began in 1962.

The jobless rate climbed to 5.3 percent in the three months to April 30, the highest level in three years. It has risen every month since September.

Hong Kong’s exports fell a less-than-estimated 18.2 percent in April from a year earlier after a 21.1 percent decline in the previous month, the government said separately yesterday.

“It’s another sign that the downturn in trade is bottoming out and that has to be good for the Hong Kong economy,” said David Cohen, an economist with Action Economics in Singapore.

Tsang had rolled out measures including increased infrastructure spending in his February budget.

To contact the reporters on this story: Theresa Tang in Hong Kong at ttang3@bloomberg.net; Kevin Hamlin in Beijing at khamlin@bloomberg.net