Trade takes centre stage
The Hong Kong government’s budget lines up a countercyclical punch to boost business as the city squares up to challenges posed by the COVID-19 outbreak.
28 February 2020
The COVID-19 outbreak has compounded challenges faced by trade-focused firms, especially small and medium-sized enterprises (SMEs), in Hong Kong which are already coping with the fallout from the Sino-United States trade dispute.
Outlining the challenges as he presented the government’s budget for 2020-21, Hong Kong Special Administrative Region Financial Secretary Paul Chan said the development of Sino-US trade relations was the most significant uncertainty facing the global economy. Moreover, the geopolitical risks in the Middle East and uncertainties surrounding the Brexit negotiations could impact the global financial market and slow down economic recovery.
“In the medium term, the economic outlook of Hong Kong remains positive,” he nevertheless said. “The development of our country and Asia will continue to be the key driving force of global growth.”
To boost trade and the overall economy, the government rolled out an expansionary budget on 26 February, lining up spending of more than HK$120 billion (US$15.4 billion) to meet the challenges.
“In preparing this budget, I put the focus on ‘supporting enterprises, safeguarding jobs, stimulating the economy and relieving people's burden’,” Mr Chan told the Legislative Council (LegCo) when presenting the budget. “Therefore, I have decided to implement countercyclical measures of a massive scale involving above HK$120 billion so as to meet the public's expectations as far as possible.”
Seeking to maintain the growth of the city’s rapidly evolving economy, the budget included several measures to ensure enterprises could meet the challenges over the 2020-21 financial year. These were in addition to the HK$30 billion (US$3.85 billion) set aside under the Anti-Epidemic Fund [https://hkmb.hktdc.com/en/1X0AJZFO/market-spotlight/Lifeline-for-SMEs-start-ups] which LegCo approved in the previous week.
Listing focus areas, Mr Chan said: “Financial services, tourism, trading and logistics, business and professional services are the pillars of Hong Kong's economy. Apart from strengthening the industries with competitive edges, I see the need to identify new growth engines by actively developing emerging industries. This will not only broaden the foundation of our economy, but also provide diversified and quality employment opportunities for young people to unleash their potential.”
On trade, an additional funding of HK$150 million will be allocated to the Hong Kong Trade Development Council (HKTDC) for organising various initiatives to promote Hong Kong; including setting up Hong Kong pavilions at overseas exhibitions, Design Gallery stores and pop-up shops in major overseas cities, and organising trade delegations. Furthermore, the Anti-epidemic Fund has also set aside resources to support locally held conferences and exhibitions. “These measures will help re-establish the confidence of the international community in Hong Kong as Asia's business hub and explore market opportunities for Hong Kong companies,” said Mr Chan.
The Chairman of the HKTDC, Dr Peter Lam, welcomed the budget, including the additional funding for the HKTDC to assist Hong Kong businesses to find new opportunities and help rebuild international confidence in Hong Kong as Asia’s commercial hub.
“We are greatly encouraged by the support from the government. Hong Kong’s SMEs are tackling immediate financial challenges; I hope the measures in the Budget, together with the recently announced coronavirus relief package for the convention and exhibition industry, will help them win new business and open up new markets,” Dr Lam said.
“When the coronavirus subsides, we will redouble our efforts to leverage HKTDC’s global network to reach out to the international community. I sincerely hope that, through enhanced promotional events, increased participation in trade fairs worldwide and proactive outreach through overseas business missions, we will help Hong Kong companies shore up their strengths and forge a bright future,” he added.
Mr Chan said Hong Kong International Airport (HKIA) will boost its annual passenger and cargo handling capacities to approximately 100 million and about nine million tonnes respectively, upon completion of the third runway at the end of 2024. “The Hong Kong Airport Authority was expanding the express air cargo terminal, developing a premium logistics centre and strengthening the airport's capability in handling high-value temperature-controlled cargoes in an effort to reinforce our leading position in air freight logistics.”
To improve maritime trade, the government will amend the relevant legislation to provide tax concessions for the ship leasing business, including offering a profits tax exemption to qualifying ship lessors and a half-rate profits tax concession to qualifying ship leasing managers. Profits tax will also be halved for eligible insurance businesses including marine insurance.
To boost technology use in the logistics industry, the government will introduce a pilot subsidy scheme this year with an injection of HK$345 million. “Each eligible third-party logistics service provider will receive subsidies to implement up to four projects, subject to a cumulative subsidy ceiling of HK$1 million,” Mr Chan said.
The budget introduced a concessionary low-interest loan under the SME Financing Guarantee Scheme. The loan for eligible enterprises is based on their salary and rental expenditures for six months, subject to a HK$2 million ceiling. The repayment period is up to three years and a six-month principal moratorium available.
Profits tax for the 2019/20 assessment year will be cut by 100%, with a HK$20,000 ceiling.
The same reduction also applies to salaries tax and personal assessment tax, with the move likely to boost consumer spending and lend further support to the retail and catering sectors.
To further boost consumption, the government will hand out HK$10,000 to each adult permanent resident of Hong Kong.
“After careful consideration, I have decided to disburse HK$10,000 to Hong Kong permanent residents aged 18 or above, with a view to encouraging and boosting local consumption on the one hand, and relieving people's financial burden on the other,” Mr Chan said. “This measure, which involves an expenditure of about HK$71 billion, is expected to benefit about seven million people. The government will announce the details of the scheme as soon as possible after obtaining funding approval from the LegCo.”
Boost for services sector
The budget covered the development of the services sector, which accounts for more than 90% of the local economy. One of the key areas highlighted is professional services.
“With its talent pool and rich international experience, the professional services sector supports the development of various industries in Hong Kong and reinforces our position as an international financial and business centre,” Mr Chan said. “We will continue to support the sector in expanding into overseas and mainland markets. We will also seek to promote the development of our professional services sector in the Greater Bay Area under the ‘early and pilot implementation’ approach.”
On financial services, measures included the continued development of green finance in Hong Kong. “Last year, we saw the successful offering of our inaugural green bond of US$1 billion under the Government Green Bond Programme. The issuance was well received by investors worldwide and set an important new benchmark for potential issuers in Hong Kong and the region,” said Mr Chan. “We plan to issue green bonds totalling HK$66 billion within the next five years, having regard to the market situation. This will further consolidate and develop Hong Kong's position as a premier green hub in the region.”
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