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Olga Wong

Hong Kong’s finance chief on Wednesday lived up to his credentials as a chartered accountant when he produced a surprisingly robust budget, flush with surpluses and full of initiatives to be funded through substantial means at his disposal.
One significant initiative is a rare move to dip into the Exchange Fund, the government’s main investment arm and de facto sovereign wealth fund, traditionally used to defend the currency peg to the US dollar, to finance infrastructure development.
The results will take time but some unmistakable shifts in government’s management of the economy are on display here, the first of which is the financial hub’s decision to seize the opportunities arising from the national development plan and to align with the country’s wider goals.
Secondly, to do this, Hong Kong has to increasingly play a more decisive role in matching capital and land with the right bets. This is a far cry from the government’s earlier role of just allowing the free market to reign supreme.
While the laissez-faire approach has evolved in recent years, this year’s budget and its clear adoption of national goals suggest a consolidation in this direction, with the government playing a greater role in the economy.
Presenting an earlier-than-expected consolidated surplus of HK$2.9 billion (US$370.73 million) that took many by surprise, Financial Secretary Paul Chan Mo-po also forecast surpluses for the next five years.

Government insiders said the forecast should not be seen as over-optimistic, given that Hong Kong has reclaimed its ranking as the world’s top fundraising market and the stamp duty income from stock transactions has exceeded expectations.
In fact, Chan has made significant moves in his spending blueprint to balance the books and capitalise on key projects while placing bigger bets on future investments.
Analysts who talked to the South China Morning Post said the changes would be better for the city, even while moving away from the traditional financing approach.
In the first such move in more than 40 years, the government will transfer HK$150 billion from the Exchange Fund, equivalent to about half of its investment income last year, to support the Northern Metropolis megaproject near the border with the mainland and other infrastructure works.
The Northern Metropolis is set to convert 30,000 hectares (74,132 acres) of land into bases for new engines of economic growth.
More bonds will be issued, with about HK$160 billion to HK$220 billion worth coming annually in the next five years, up from HK$150 billion to HK$195 billion planned in the previous budget. It will in effect raise the ratio of government debt to gross domestic product from a maximum of 16.5 per cent last year to 19.9 per cent.
The heavy investment by the government is further evidenced by the substantial amount of funds injected into innovation-related projects. Chan will set aside HK$10 billion each for three companies being established to oversee the Hetao Hong Kong Park, San Tin Technopole and Hung Shui Kiu Industrial Park within the Northern Metropolis.


Another HK$220 million is also earmarked to set up the first national manufacturing innovation centre outside the mainland in Yuen Long to facilitate production of semiconductors meeting national standards for use by the aerospace and electric vehicle industries.
“The bigger role of government in the economy in recent years is a shift from the past, when Hong Kong was still talking about small government and big market, or the laissez-faire policy,” said Liu Pak-wai, director of the Institute of Global Economics and Finance at the Chinese University of Hong Kong.
“While we are moving closer to mainland China’s approach, it is also a global trend,” he added, citing the US government’s heavy investment in the semiconductor industry.
Liu said the central government had made a success of its substantial subsidies and infrastructural support for the electric vehicle industry, which now accounts for more than half of global production.
“The critical question is: is the judgment of our officials spot on?” he said.
Commenting on the rare move to build infrastructure with income from the fund, Liu said it was a justified decision but cautioned against making it regular.
“It is important to maintain monetary stability in Hong Kong. The government must ensure the system is capable of handling more risks, given the geopolitics,” he said.
But he noted that the government would have to issue even more bonds if it did not dip into the income from the fund.

“The debt to GDP ratio would then be even higher. How would it affect the credit rating by agencies?” he said. ‘Now the level of the city’s fiscal reserves has gone up to an amount equivalent to 10 months of government expenditure. It will help stabilise the situation and ease public worries.”
Finance sector lawmaker Ronick Chan Chun-ying said the fund would remain robust, pointing to the remaining HK$4 trillion in reserves.
“The Exchange Fund has maintained stability with over HK$3 trillion in reserves for years. I do not believe reducing it by HK$150 billion would have any impact,” Chan said.
“This is definitely a one-off measure under the current circumstances; it should not regularly transfer HK$150 billion every two years. It will still depend on how quickly the Exchange Fund accumulates reserves.”
Gary Ng Cheuk-yan, a senior economist for the Asia-Pacific at Natixis, said there would be enough capital in the fund even in the unlikely event that Hong Kong would have to fight off international speculators, adding that the central government could step in if necessary.
“If you look at the size of the investment income taken out, that’s about 3.6 per cent of the Exchange Fund, which is not a lot … the government is simply using its own money that is under others’ management for investment, but whether it would succeed that’s a different matter,” Ng said.
Billy Mak Sui-choi, an associate professor at Baptist University, said the government had moved away from the “small government, big market” philosophy, while embracing more proactive macro policies to support industries’ development through strategic planning.
“The government aims to help the industry to develop through planning,” Mak said. “Is this something bad? All our neighbouring competitive regions have been doing exactly the same for a long time, such as Singapore, Hangzhou and Shenzhen.”
Additional reporting by Matthew Cheng and Ambrose Li


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Hong Kong Economy

This year’s budget and clear adoption of national goals show Hong Kong government playing a greater role in the economy


This year’s budget and clear adoption of national goals show Hong Kong government playing a greater role in the economy.


Budget reveal: government turns matchmaker with stronger hand in shaping economy

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}This year’s budget and clear adoption of national goals show Hong Kong government playing a greater role in the economy

This year’s budget and clear adoption of national goals show Hong Kong government playing a greater role in the economy