New Hong Kong Stimulus Aims to Pull City Out of Recession

Hong Kong has resorted to unleashing an economic stimulus package for the third time in as many months, this time injecting HK$2 billion ($255 million) into the economy as protests in the city enter their fifth month.

On Tuesday Hong Kong Financial Secretary Paul Chan Mo-po announced a raft of economic relief measures that are geared primarily towards alleviating the downward pressure put upon the embattled city’s retail and transport sectors.

“The relief measures will increase the chance of the government slipping into a deficit, but we will make good use of our resources on hand to help industries ride out the economic downturn,” Chan said

Hong Kong’s government often runs a budget surplus, thanks mostly to taxes collected from real estate developers. Last year the government recorded a surplus of $17.6 billion. Revenue from “land premiums” accounted for 27% of government income that fiscal year, making taxes from real estate developers the largest single contributor.

High land costs in turn compel real estate developers to flood residential towers with small units to maximize returns. Small living spaces and high apartment rents are often flagged as an underlying cause of unrest in Hong Kong. Announcing the stimulus measures Tuesday, Chan said, “We hope property owners and landlords will support tenants, for example, retailers, restaurants, tourism and logistics operators.”

What’s in the box?

Last month the government injected HK$1.4 billion into the economy and, in August, the governing body unveiled a mega HK$19.1 billion worth of stimulus measures. Chief Executive Carrie Lam also tucked a number of stimulus measures into her policy address last week.

Included in the offer this week: a 50% rent subsidy, totaling $76 million, for retailers operating in units owned by the government; a six-month fuel subsidy for most of Hong Kong’s more than 61,000 taxi and minibus drivers; and a one-time fee waiver for ship inspections, benefitting over 6,000 commercial crafts.

Collectively, the relief measures are expected to boost Hong Kong’s economy by 2% this year. Hong Kong, one of Asia’s richest cities, has already slipped into a technical recession, with the economy contracting for two consecutive quarters this year.

Hong Kong’s tourism industry has been hit particularly hard as “Asia’s World City”—the moniker bestowed upon Hong Kong by the local tourism authority—is today better known as the City of Protest. Tourist arrivals fell 50% in the first 15 days of October, while visitors were down 40% year-on-year in September.

Hotels in the city are slashing room rates—so much so that some hotel rates are now cheaper than apartment rental fees. Some flights into the city are operating at steep discounts, too.

More measures are due to be announced to support the tourism sector. On Tuesday, Secretary for Commerce and Economic Development Edward Yau Tang-wah said those new measures will be based on two guiding principles: “helping the tourism sector to tap more new business and supporting employment in the tourism industry.”

However, with protests growing increasingly disruptive, tourist numbers likely won’t bounce back soon.