Hong Kong’s vibrant economy has avoided recession amidst the global financial crisis, but the effects of the worsening European sovereign debt crisis are starting to show. How is Hong Kong’s economy being affected? How should the government respond?
Hong Kong is a small and open economy that is fully plugged into the global market, so the problems in the United States and Europe will inevitably affect us in areas such as trade and investment flows.
So far, trade has held up reasonably well and investment flows have remained strong. We continue to play an important and unique role in the ongoing reforms taking place in Mainland China, which provides a pretty solid backstop to our economy and helps smooth out some of the disruptions that might be experienced elsewhere in the world.
We have weathered the crises reasonably well due to the fact that we live within our means, keep a close eye on bank lending and supervision, and have been pushing forward initiatives to broaden the base of our economic development. We have seen some mild inflationary pressure and are tracking that quite closely. But at the same time, there has been some wage growth across the board which has counter-balanced that inflationary pressure.
In times of such uncertainty, we take both short-term and long-term measures.
In the short term, for example, we provide targeted financial relief for low-income families or loan guarantees for small and medium enterprises finding it difficult to secure lines of credit from the banks. The main aim is to help people and businesses push through the trough.
Longer term, we continue to invest heavily in infrastructure. An important and largely unique aspect of our infrastructure spending is that we fund our projects entirely from reserves, which means we do not borrow any money which then becomes a burden on future governments and future generations. These projects not only help upgrade the cityscape and enhance efficiency and competitiveness, but they also create jobs across a range of income levels and professions during construction
Plans are well advanced for new developments that will transform our iconic harbor front into a much more vibrant and accessible asset. New cultural, tourism and sporting landmarks will be developed, along with an entirely new waterfront on Hong Kong Island and a new central business district centered around the old airport site at Kai Tak.
Major new transport links to Mainland China are also underway, including the Hong Kong section of the national high-speed rail network and a 30-plus kilometer bridge to Macao and Zhuhai.
Even if we hit some bumps along the road in 2012 or the year after, we have put in place much stronger foundations for our future growth and development.
The Heritage Foundation has consistently ranked Hong Kong as the world’s freest economy for the past 17 years. How can this level of openness be sustained?
Economic freedom is about more than just making it easy to trade or to do business. It is about your mindset and the systems you have in place to ensure the free and smooth functioning of the market.
Our constitutional document, the Basic Law, protects a whole range of rights and freedoms that are essential elements for economic freedom to take root and flourish. These include equality before the law, freedom of the press and information, freedom of communication, freedom of movement and travel, freedom of occupation, and freedom to engage in academic research and artistic creation. These rights and freedoms are jealously guarded by the people of Hong Kong because we know they are absolutely vital for our success as a free and open society, as well as a free and open economy.
An entire chapter of the Basic Law deals with the economy. It impels us to protect property rights; maintain our low-tax system; live within our means; safeguard the free operation of the financial markets; ensure the free exchange of currency, gold and securities; pursue a policy of free trade; and safeguard the free movement of goods and capital. Institutionally, our “free economy” is not just protected by law; we have a constitutional duty to ensure it remains that way.
But it goes even deeper than that—economic freedom is hard-wired into the psyche of Hong Kong people. We have thrived as an economy that is totally open to the world, that absorbs and adapts all that the world has to offer, and that benchmarks itself against the best in the world. As a government, our policy is that the “market leads and government facilitates.” We don’t want the government to play too large a role in the economy; we want to provide the policy and administrative environment needed for business to flourish. When business flourishes, society benefits as a whole.
As Chief Executive, you have helped enact democratic reforms in Hong Kong. What are your thoughts on the pace of these reforms?
The Central People’s Government of China has set a timetable for the Hong Kong Special Administrative Region to reach our ultimate goal of universal suffrage: 2017 for the Chief Executive and 2020 for the Legislative Council. They set this timetable in December 2007 after my government asked them to do so. I felt very strongly that without a timetable we’d go nowhere, because there were many different views on the pace of democratic reform and how quickly or otherwise we should reach our destination. After we had a definite timeline, we could concentrate on reaching universal suffrage in the gradual and orderly manner that is stipulated in our Basic Law.
Last year was a watershed in Hong Kong’s political development because the required two-thirds of our legislators (that is, at least 40 of 60 legislators) voted to change our electoral system to pave the way for universal suffrage. As a result, we have introduced more democratic elements for the Chief Executive election to be held in March this year and for the Legislative Council elections in September this year.
It is up to the next government (to be sworn in on July 1 this year) to propose more democratic elements for the Legislative Council elections in 2016 and a way to achieve universal suffrage for the election of the Chief Executive in 2017.
We are seeing progress this year, and the most important next step is to ensure that the momentum of change continues in 2016 and 2017.
In March, Hong Kong will elect a new Chief Executive. Looking back on your seven years as Chief Executive, what do you consider to be your single greatest success? On the other hand, what is one thing you wished you could have accomplished but could not?
It’s always difficult for any political leader to look back over his or her tenure and pinpoint one thing as the greatest success. It’s also a bit dangerous because what I consider the greatest success might not be seen in such a positive light by others.
There is nothing that I alone have achieved as Chief Executive. For a start, you need the support, input, and dedication of your team. Then you need to garner the support of the legislature and the community as a whole. So, in effect any successes we have had as an administration are the result of a lot of hard work by the team, a lot of discussion and debate within society, and some give-and-take by all sides.
Having said that, there are a number of developments that I think are particularly important and that I am happy we could get through.
On the political front, we secured a timetable from the Central Government to reach universal suffrage, and then we got the support needed from the legislature to push forward our democratic development in 2012. In terms of Hong Kong’s political development, these were historically important milestones.
On the socioeconomic front, we introduced a minimum wage law in Hong Kong that will better protect the interests of low-income earners. We are now pushing ahead with a competition law to reinforce our philosophy of a level playing field in business, and I hope that we can get that passed before the end of my tenure on June 30, 2012.
On the broader economic front, we have consolidated Hong Kong’s position as the global financial centre for China, in particular our role as the testing ground for the internationalization of the Chinese currency, the Renminbi. We have also continued to gain enhanced access to the Mainland market for Hong Kong companies, especially for services. And we have also promoted a more broad-based economic development model to provide a more sustainable footing for the future.
Biggest disappointment? I can’t really say that I have one. Do I wish things had gone better on some issues? Sure. But I’m a rather pragmatic person and prefer not to dwell too much on what might have been. If we encounter a setback, I try to learn from it to see how we can do better in the future. After more than 45 years in the public service, you tend to take a broader view of issues than you might have done, say, after only 10 or even 20 years in the job.
What are your plans after leaving office?
I still have much work to do from now until my last working day as Chief Executive on June 30, 2012. Our next fiscal budget is due out in February, and with so much uncertainty in the global economy, I am sure we will have more than enough to keep me engaged and busy over the next several months. We will also have to plan for the smooth transition of government on July 1, 2012.
After my time as Chief Executive, I will retire from government service but will also be starting a new chapter in life with new avenues to explore. I have enough family and religious interests to keep me fully occupied after my retirement from government. I shall have no trouble staying physically or mentally active.