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It never rains but it pours


Last week, I attended two international conferences overseas. First one was the Asia-Pacific Economic Cooperation (APEC) Finance Ministers' Meeting (FMM) in Santiago, Chile, and the second was the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) as a member of the Chinese delegation in Washington DC, the United States. During my stay, including a stopover in New York, I met with officials of the Government and US Federal Reserve, representatives of think tanks and credit rating agencies, as well as fund managers and key players of the business community to share and exchange views on macro economy and financial market, and brief them on the current situation of Hong Kong.

From the meetings, there was a consensus among the IMF and representatives of the business and investment sectors that global economy has been undergoing a synchronized slowdown. The pressure for an economic downturn will be even greater if trade conflicts and geopolitical tensions escalate.

Due to the uncertainties ahead, IMF announced earlier in the World Economic Outlook to lower the global growth forecast of the current year and the next. The global growth for this year is expected to be 3%, which is the lowest level in the decade and a 0.2 percent point downward revision compared with the forecast in July. This is the 5th time for IMF to lower its forecast on global economic growth. The total adjustment so far is 0.9 percent points downward. Growth forecast for 2020 is 3.4%, which is a 0.1 percent point downward revision.

Facing this rigorous moment, Government officials and business sector of different economies were encouraged by the positive progress recently seen in the trade negotiation between China and the US, and they looked forward to concrete results of the negotiation.

IMF pointed out that, to tackle economic uncertainties, around 70% of global economies have been adopting an easing monetary policy. It also advised economies to implement appropriate macroeconomic strategies and expansionary financial policies, in particular enhancing investments in human resources and infrastructures, so as to avoid getting into prolonged recession and deflation.

In fact, this aligns with the HKSAR Government’s thought in launching timely counter-cyclical measures to counter the impact of the current downside wave of global economy.

In mid August, we announced a series of measures totaling about $19.1 billion. Together with the one-off relief measures announced in the 2019-20 Budget which cost $42.9 billion, the above measures with a total sum of $62 billion are expected to provide a 2% impetus to our economy. In addition, we will expedite the implementation of minor works projects to create more job opportunities. In the light of economic downturn and local social incidents, Hong Kong’s economy, especially the transportation, logistics, tourism, retail and catering sectors have been hard hit. We are therefore formulating the third round of relief measures, in the hope to reduce the pressure of the relevant sectors.

To alleviate the financing pressure of enterprises, in particular small and medium enterprises (SMEs), we called on banks to be more compassionate and provide their full support to SME borrowers while complying with their credit policies and risk management principles. The Hong Kong Monetary Authority (HKMA) has recently established the Banking Sector SME Lending Coordination Mechanism, and the banking sector provided positive feedback at the first meeting conducted last week. Moreover, HKMA has reduced the counter-cyclical capital buffer (CCyB) ratio to 2% from 2.5%, which allows banks to release the capital buffer built up in the past. Through this, it is expected that an additional funding of around $200-$300 billion can be provided for lending.

All the people I have met during the trip were very concerned about the current situation and development of Hong Kong. They were particularly concerned by the safety of Hong Kong as we have been a very safe city for years but blockage and vandalism of the airport and railways as well as violent acts on streets kept happening in the past months.

Many of the business people said that they did believe that the unique position and advantages of Hong Kong offer numerous investment and development opportunities. However, they were worried about the violent acts and damage to infrastructures, which led them to defer investment plans.

At my meetings with them, I provided an update on the current situation of Hong Kong, the Government’s determination to stop violence, our commitment in safeguarding the free flow of capital within, into and out of Hong Kong, as well as ensuring the comprehensive and effective implementation of the "one country, two systems" principle. Hong Kong’s institutional strengths and core competitiveness are still intact and widely recognized by many international agencies. Although their confidence remains, the persistent social unrest and violent attacks made them worried about the prospect of Hong Kong. They stated that if the current situation continues, they would have no choice but to consider other alternatives to plan for the worst.

October 20, 2019