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HK govt facilitator of economy

By Hong Liang (China Daily)
Updated: 2009-01-20 07:46

Being named the world's freest economy for the 15th year by US think-tank The Heritage Foundation was nice. But that really didn't come as too much of a surprise to those of us who have been for many years the serious students, staunch supporters and, on occasions, merciless critics of Hong Kong's economic system.

We felt most encouraged by the government reassurance of its role as the self-effacing "facilitator" of, rather than the crowd-pleasing meddler in, our economic affairs. And this despite the rising pressure brought upon it by an increasingly vocal and demanding public.

As the popular and capable Financial Secretary John Tsang Chun-wah succinctly said: "We provide a business-friendly environment where all firms can compete on a level playing field and establish an appropriate regulatory regime to ensure the integrity and smooth functioning of a free market."

That "free market" economy is now being put to the severest test in recent years by the global financial crisis that is relentlessly pushing the major world economies into what could possibly be the worst slump since the Great Depression in the 1930s.

The outlook of Hong Kong's externally-oriented economy is understandably bleak. Many companies, especially those in the financial and export sectors, have reportedly begun laying off workers as they brace themselves for steeper decline in business in the next 12 to 18 months. A survey commissioned by the American Chamber of Commerce in Hong Kong, polling 155 members, showed that the majority of the respondents said they didn't expect the economy to recover before 2011.

The dismal business climate was painfully reflected in the sharp rise in bankruptcy petitions to 1,334 in December 2008, up nearly 85 percent from a year earlier. Bankruptcy lawyers in Hong Kong said they expect many more companies will choose to fold rather than to rough it out in coming months.

Against such a gloomy backdrop, few companies are in the mood to invest and most consumers are tightening their purse strings. The expected sharp fall in aggregate domestic demand will almost certainly plunge the service-dominated economy deeper into a recession.

In times like this in the past when Hong Kong was a low-cost manufacturing base, the government had a simple choice of drastically cutting spending to spare financial and labor resources for the private sector.

This hands-off approach to economic management has largely been discredited in favor of a rather more engaging economic policy since Hong Kong shed its industries and moved on to become an international financial and service center in the 1980s.

Bur purists contend that this policy change was brought about not so much by the shift in economic fundamentals, but rather by a sea change in the social and political environment marked by rapidly rising expectations of the Hong Kong people.

The discipline of governance rules out the option of deficit financing. For that reason, any economic stimulus package must contain economically feasible projects in which the private sector is willing to participate. With the prospect of the economy clouded by the global recession, any large-scale project that does not promise a quick return would be a hard sell.

The Hong Kong people must wait until the Financial Secretary's budget speech on Feb 25 before they can get a clearer idea of what measures the government will take to keep the economy from sinking deeper into a recession. Mr Tsang has said that his priorities are job creation and competitiveness enhancement, and his main mission is to help the Hong Kong people overcome hardships in these troubled times.

Whatever measures the government may take to address the big economic problems confronting us, we are confident that it has the discipline and wisdom to keep to its primary role of "facilitator" in maintaining the free-market environment that is our heritage and most valuable asset.

E-mail: jamesleung@chinadaily.com.cn

(China Daily 01/20/2009 page8)