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Hong Kong Budget 2015-2016
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Fashion is one local industry John Tsang wants to boost. Photo: AFP

Global uncertainty to weigh on Hong Kong's economy, finance chief says in budget

Citing a cloudy international situation, financial secretary concentrates on stimulating local growth and economic diversification

The city's economy faces a "challenging" year ahead amid global economic uncertainty, Financial Secretary John Tsang Chun-wah warned as he unleashed a host of measures intended to electrify economic growth.

The city's economy will grow this year by between 1 and 3 per cent, Tsang said in his budget speech yesterday, meaning it may lag behind the 2.3 per cent growth recorded last year - the third year in a row the city fell below its average growth rate for the past decade, 3.9 per cent.

"Our external trade performance will be affected by a host of uncertainties this year. It can hardly drive our economic growth," Tsang said. "We shall need to rely on domestic demand to maintain economic vibrancy and preserve employment."

He pointed to the economic woes of Europe and Japan as one key factor in the uncertainty. Volatility in the price of oil would exacerbate the situation and made it hard to predict the likely pace of interest rate increases in the United States, Tsang said. US rates have a direct bearing on Hong Kong because of the city's currency peg to the US dollar.

Among the measures Tsang announced were efforts to boost tourism, including an HK$80 million drive to polish the city's global image and diversify the tourism sector away from its heavy reliance on mainland visitors.

Tsang also announced help for the city's 320,000 small and medium-sized businesses, which employ half the private sector workforce. Measures include a HK$1.5 billion injection into funds that support SMEs' marketing and development. The maximum sum each project can receive from the funds will more than double, from HK$2 million to HK$5 million.

The government will also promote industries including fashion, film, arts and technology in a push to diversify the economy.

Some HK$500 million will be pumped into the fashion industry to launch an incubation programme for start-ups and to step up promotion of local brands.

The Film Development Fund, which supports the production of small-to-medium-budget films, will get HK$200 million.

A HK$300 million pilot scheme will be launched under which the government will match private-sector donations and sponsorship secured by local arts groups.

On the technology front, a steering group will be set up to look at how the city can become a hub for financial technologies such as cloud computing and hi-tech payment systems.

Ryan Lam, senior economist at Hang Seng Bank, expects economic growth to hit 2.6 per cent as trade improves, especially within Asia. He believes the conservative prediction may be a reaction to uncertainty over the international currency market.

"In this year's budget, the government paid more attention to long-term economic measures," he noted. "Traditional industries will only see limited growth. The government wants to support high-value-adding industries."

Chester Soong, chairman of the Internet Society Hong Kong Chapter, applauded Tsang's decision to inject money into the funds to support SMEs. He said the funds had proved popular, and lifting the cap would mean they could be used more flexibly. He urged the government to support university research into financial technology.

Tsang says the city will further expand its yuan trading; trade settlement in yuan was up 60 per cent year on year for last year to 6.3 trillion yuan (HK$7.9 trillion). Discussions were continuing with the central authorities on a proposed link between Hong Kong's stock market and that of Shenzhen and on enhancing a similar link to the Shanghai bourse that was launched in November, Tsang added.

This article appeared in the South China Morning Post print edition as: Uncertainty ahead for economy
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