Hong Kong’s economy grew 2.5% in the 4th quarter of 2012 compared to a year earlier, significantly higher than the 3rd quarter’s figure of 1.4%. The economy’s more robust performance is seen as a sign that the slowdown following the global recession is letting up.
John Tsang, Hong Kong’s Financial Secretary projected that growth would be between 1.5% and 3.5% for 2013, after a disappointing 1.4% in 2012. With the IMF projecting a year of growth for the global economy (predicted to be 3.5%), these figures look very achievable for export-driven Hong Kong.
Tsang also revealed the 2013 budget on Wednesday. It stipulates a 31% increase in spending on social welfare to HKD 56 billion, with allowances being given to over 400,000 elderly Hong Kong residents. The budget also introduced one-time rebates and electricity subsidies amounting to HKD 33 billion. Tsang hopes that these measures will help boost economic growth by up to 1.3%, while chipping away at the city’s record-high income inequality.
To support the economy in the long-term, the government will be expanding Hong Kong’s logistics and fund management industries. These sectors have recently come under threat from Singapore, which has long surpassed Hong Kong in terms of shipping volume, and is on track to become Asia’s fund management hub in the near future.
Since Tsang became financial secretary six years ago, Hong Kong’s forecasted budget deficits have resulted in surpluses, so much so that it has accumulated funds amounting to almost 23 months’ total spending. This gives the government some flexibility to engage in additional infrastructure and social spending, the latter gaining more importance given Hong Kong’s aging population.
Housing and pollution are other issues that the government, under the leadership of Chief Executive Leung Chun-Ying, has pledged to focus on. The price of housing has shot up in recent years, and is now double what it was in 2009. This can be attributed to record-low interest rates and an influx of buyers from China.
In the tax department, both corporate and personal income tax rates remain unchanged. However, there is a reduction on some government duties/fees along with other incentives such as waiving the Hong Kong business registration fee for 2012/13 and a specific fund for Hong Kong companies to take advantage of the Mainland China market.
While the cost of living in Hong Kong may be very high, the benefits of doing business in the city vastly outweigh the costs. It remains a tax-efficient city, a very free and cosmopolitan economy, and provides access to most of the world’s biggest financial institutions. It is an excellent gateway to China, where there is still much value that can be unlocked. Aidan Healy, Managing Director of Healy Consultants, explains this in more detail in this article about doing business in North Asia.
We’d like to hear how your business has been affected by these new developments in Hong Kong. Let us know your thoughts.