From AFP via HKFP, a look at Hong Kong’s ‘mammoth’ budget deficit…
The Chinese finance hub last saw a string of deficits after the Asian financial crisis in the late 1990s — but their scale was a fraction of the HK$252 billion (US$32.4 billion) shortfall in the 2020-21 fiscal year.
Hong Kong has recorded annual deficits exceeding US$20 billion in three of the past four years, according to official figures.
…While Chan earlier predicted a return to surplus in “three or so years”, a former government minister told AFP that the situation is “not just due to economic cycles” spurred by the coronavirus pandemic.
“If you look at Hong Kong versus other economies in the region, for example Singapore, those other economies have done much better,” said Anthony Cheung, who oversaw transport and housing policies.
Adding to the headache is the exodus of companies and high-paid workers as the city’s international reputation took a hit after Beijing quelled pro-democracy protests and imposed a sweeping national security law in 2020.
…The city’s economic fortunes are ultimately tied to how investors view the city as a regional and global hub, said Cheung, the former minister.
“We have to continue to showcase Hong Kong as a city that welcomes all kinds of views, all kinds of people, so long as they stay within the parameters of the national security legislation,” Cheung said.
The government does not appreciate suggestions that the post-2019 ‘second handover’ NatSec order might play a role in Hong Kong’s economic predicament. It’s impossible to disentangle the ‘NatSec’ effect from other factors. For example, Covid would have hit the economy under any circumstances; but the new ‘all-patriot’ leadership made things x% worse by insisting on emulating Beijing’s zero-Covid approach well after the rest of the world started opening up. If it were possible to measure different underlying causes, China’s post-bubble economic slowdown would account for the bulk of the problem. Looking forward, global backlashes against China’s over-production will increasingly weigh in.
As for what to do about it, we’ve been over this before. As the article says, the Northern Metropolis project looks likely to go ahead. If used wisely (if), the land freed up by rezoning and other measures could deliver decent affordable housing on such a scale as to offer economic stimulus in its own right. Imagine what households could do if they spent less on housing. The Lantau reclamation looks, literally, dead in the water, though officials don’t want to admit it.
Anyone can think up relatively small measures like trimming elderly transport subsidies or jacking up parking fines, which might make sense but don’t impact the numbers much. Few want to consider major shifts in revenue and expenditure, as the Budget will no doubt show.
On the tax side, the main serious options are higher salaries/profits tax rates, or a (more regressive) sales tax. All of which might harm economic activity anyway. There’s a danger that officials will try to resurrect the old high-land-price housing-scam fiscal model, which has done so much to distort the economy (and create public discontent) in the past. Land revenues, the article says, were US$21 billion in 2018 and US$ 2.5 billion last year. That way, they might calculate, they can protect their own over-inflated pay packages. Because, probably, the only responsible way out is a long (five-10 years?) civil-service pay freeze.
If we are looking to trim a little here and a little there – how about having fewer people who are ‘innocent until proven guilty’ in jail? David Webb’s latest update. As of end-2024, 38.8% of incarcerated people in Hong Kong were on remand – ie awaiting trial. Add in those detained under immigration laws, and that’s 40.2%, or 3,889, of people in custody who have not been convicted. Both the percentage and the total number are records.
Any political measure that results in real estate prices falling is, was and always will be a non-starter in HK, that shining example of rentier/cartel capitalism.
But until that happens, the absurd cost of square feet – both to run businesses in, and to live in – with continue to be the vampire squid sucking the competitiveness out of the dying HK economy.
It’s very hard to be optimistic here.
“…how about having fewer people who are ‘innocent until proven guilty’ in jail?”
Man, with those numbers you’d think HK was the U.S. though the U.S. bail/extortion industrial complex differs quite a bit in that only the truly poorest are the ones languishing in the hole.
I do not understand this comment about “bail / extortion”. Wouldn’t offering bail to those held on remand resolve the shameful stat of having 3X% of people languishing in prisons without conviction?
There’s a lot of highfalutin talk on this site about “real estate this” or “regressive tax that”. What Paul Chan should do is pivot and turn the Northern Metropolis into the Pandatropolis. Give the people what they want. The tourists will flock. Pandas, pandas and more pandas. You want blue-sky thinking: have a Hello Kitty-Hello Daniel-panda fest. Not enough pandas? Give tax breaks to those prepared to identify as pandas.
Pandas, pandas, pandas, pandas, pandas.
Pandas.
@Reductio
I wonder if we’d be allowed to protest for more pandas?
“It’s impossible to disentangle the ‘NatSec’ effect from other factors.”
To be honest, it is possible — sort of — and indeed Anthony Cheung did it just above:
“If you look at Hong Kong versus other economies in the region, for example Singapore, those other economies have done much better.”
That speaks to HK having a unique situation which is… drum roll… NatSec.
And, while we’re being honest, NatSec also manifested itself as disastrous COVID policies (they were not just about seeking atonement by showing obsequious fealty to the politburo, but also to keep the population indoors instead of protesting).
So that, too, was a NatSec move, compounding the more obvious ones of gutting the middle classes by making emigration look like the smart play or locking them up; and scaring off a big chunk of the money by dismantling rule of law and freedom of the press and speech (those last were basically Hong Kong’s USP — you might as well just set up shop in Beijing or Shanghai rather than Hong Kong now for all the difference it makes in terms of actual protection).
Not to mention how much extra all that shiny new NatSec apparatus cost, coupled with the bill for a year’s worth of tear gas, triads, toys ‘n’ OT for the regular cops. That’s a hefty budget deficit all on its own.
And to a large degree, China’s post-bubble slowdown is much the same level of problem for Singapore. Perhaps a little less so due to multinationals bailing from HK to Singapore, but again that’s down to NatSec, so…