Economic Measures Expected in Hong Kong's Policy Address

By James Pomfret
HONG KONG (Reuters) – Hong Kong is set to announce measures to enhance the city’s economy in its annual policy address on Wednesday, which may include reducing liquor tariffs as it aims to rejuvenate the financial hub struggling to recover since the pandemic.

Hong Kong's small and open economy has been affected by the slowdown in the Chinese economy. In the second quarter, the city’s economy grew by 3.3% year-on-year and is projected to grow 2.5-3.5% for the year.

While tourism is rebounding, with 46 million visitors anticipated this year, consumption and retail spending are still weak. Stock listings have decreased, and capital flight remains a significant concern.

In February, the city’s financial secretary unveiled new measures affecting property, tourism, and financial services, acknowledging challenges like a complicated geopolitical environment and rising budget deficits.

During a recent meeting, Xia Baolong, China’s top official on Hong Kong affairs, urged for further reforms to boost growth aligned with China’s national strategy. Xia encouraged the Hong Kong government to unite all sectors for reform and urged businessmen to contribute to this initiative.

One commentator from the state-run China Daily noted that Xia’s remarks indicated a need for “economic and social reforms.”

John Lee, the Hong Kong leader, has highlighted economic development and public welfare as priorities and defended the new national security laws instituted in March, claiming they enhanced stability.

Some nations, including the U.S., have criticized Lee for a prolonged security crackdown that resulted in opposition democrats being imprisoned, liberal media being closed down, and freedoms being curtailed.

Lee will present his policy address on Wednesday at 0300 GMT.

Local media have reported possible plans to eliminate some sub-divided flats that do not meet acceptable living standards. Lee is also likely to advocate for tourism-related initiatives.

In the real estate sector, which is vital to the economy, Lee faces pressure to revitalize a market that has dropped nearly a fifth from its 2021 peak. Some market players, such as Sammy Po, CEO of Midland Realty's Hong Kong residential sector, have called for reducing red tape to facilitate capital transfers and mortgage security for younger Chinese buyers under talent schemes.

Considering the liquor sector, taxes may be slashed from the current 100% rate—one of the highest globally—to transform the city into a spirits trading hub, harking back to its shift into an Asian wine trading center post-2008.

This move could help local bars and restaurants that have struggled since COVID, especially as local residents now prefer dining in Shenzhen, across the northern border, for better prices.

According to recent data, retail sales have decreased by 7.7% in the first eight months of 2024 compared to the same period last year.