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Hong Kong e-News: Financial Secretary unveils Budget measures

Hong Kong e-News – 24 February 2016

Financial Secretary unveils Budget measures to promote innovation and explore new markets in the new global economic order

The Financial Secretary, Mr John Tsang, delivered the Budget Speech for 2016-17 to Hong Kong’s Legislative Council on Wednesday 24 February 2016.

Overview

Mr Tsang said Hong Kong should act swiftly to identify new development opportunities arising from a new economic order that is being driven by breakthroughs in information technology (IT) and the increasingly influential role of emerging markets in the global economy.

“In view of this trend we need to expand our trading ties with the rest of the world and develop more markets for Hong Kong enterprises,” he said.

Hong Kong could leverage its advantages under the “one country, two systems” framework to capitalise on the potential of China’s Belt and Road Initiative as well as other development opportunities, in order to sustain its economic growth.

Hong Kong must maintain its strengths through research and application of innovative technologies, development of financial technologies (Fintech), start-ups and the creative industries, as well as fostering of suitable talents.

Mr Tsang cited robotics, healthy ageing and « smart city » as areas in which Hong Kong could apply and commercialise research and development (R&D) results.

« With an ageing population and a shrinking workforce, the application of smart production technologies, in particular robotics, is vital, » he said.

Hong Kong has emerged as one of the world’s most popular start-up hubs, Mr Tsang said, adding that the Government shall continue to offer comprehensive support to start-ups in various areas, including business incubation, financing, business expansion and office space.

On Fintech, the application of technology to the financial services sector, he said the Government would follow up on measures recommended by the Steering Group on Financial Technologies, which he set up last year to examine the direction of Fintech in Hong Kong.

Mr Tsang announced that in the light of the challenges to be faced by the local economy in 2016, the Government would take appropriate measures to stimulate the economy and support residents and enterprises, in particular small and medium enterprises, which employ 50% of the private sector workforce. There would also be support for the tourism industry.

Economic performance

  •  Hong Kong’s economy grew by 2.4% in 2015, the fourth consecutive year that annual Gross Domestic Product (GDP) growth had been below the 10-year average of 3.4%.
  • Underlying inflation was 2.5% for 2015 – the fourth consecutive year of easing.
  • Unemployment averaged 3.3% in 2015 but a recent slowdown in sectors relating to inbound tourism was cause for concern. Tourist arrivals fell by 8% in the fourth quarter of 2015 and the volume of retail sales registered its first annual decrease since 2009.
  • On the fiscal front, the Government has forecast a surplus of HK$30 billion (EUR 3.51 billion) in 2015-16 and expects fiscal reserves of HK$860 billion (EUR 100.65 billion) by 31 March 2016, equivalent to 24 months of government expenditure.

Economic Outlook

  • Global economic uncertainty will see Hong Kong’s economic growth slow to just 1 to 2% in 2016. Medium-term GDP growth of 3% per annum in real terms and underlying inflation of 2.5% per annum is forecast from 2017 to 2020.
  • Inflation is expected to taper further to 2% in 2016 due to soft import prices and easing in local cost pressures.
  • For 2016-17, the Financial Secretary estimated total government expenditure of HK$490 billion (EUR 57.38 billion), comprising HK$380 billion (EUR 44.48 billion) in operating expenditure and HK$110 billion (EUR 12.87 billion) in capital expenditure, of which HK$79 billion (EUR 9.24 billion) is for capital works. Public expenditure will be equivalent to 21.2 % of GDP.
  • Total government revenue for 2016-17 is estimated to be HK$500 billion (EUR 58.52 billion), of which earnings and profits tax is estimated at HK$206 billion (EUR 24.11 billion). Land revenue is estimated to be HK$67 billion (EUR 7.84 billion).
  • A surplus of HK$11 billion (EUR 1.28 billion) in the Consolidated Account is forecast for 2016-17, with fiscal reserves estimated at HK$870 billion (EUR 101.85 billion) by the end of March 2017, the equivalent of 21 months of government expenditure.

Tax relief measures for residents and businesses

  • Profits tax and salaries tax for 2015-16 will be reduced by 75%, subject to a ceiling of HK$20,000 (EUR 2,342).
  • Business registration fees will be waived for 2016-17 to benefit 1.3 million business operators.

Information technology, R&D

  • The Hong Kong Science and Technology Parks Corporation (HKSTP) is considering promoting smart production and research in the Tseung Kwan O Industrial Estate using robotics and IT to drive the development of the entire value chain, from product R&D and design to production, testing, marketing and branding. The project would cost HK$8.2 billion (EUR 96 million), with completion expected in 2021-22.
  • As for healthy ageing, many innovative technologies, including the electronic wheelchair, medical image scanning systems and medical equipment for stroke rehabilitation have been developed by local manufacturers with support from the Science Park. Biotechnology, healthcare and medicine would remain the Park’s key R&D focuses. HK$500 million (EUR 58.54 million) has been set aside for an Innovation and Technology Fund for Better Living.
  • Regarding “smart city”, the Government would implement a Water Intelligent Network project in phases, installing sensors in water-supply networks. In addition, a new desalination plant using the latest reverse osmosis technology would be built at Tseung Kwan O. Design work for the first stage of the plant commenced in late 2015.
  • Funding schemes will be introduced, or enhanced, to encourage more private enterprises to invest in R&D and applied technology, and to translate outstanding local R&D achievements into products and services with commercial value. They include a HK$2 billion (EUR 234.1 million) Midstream Research Programme for Universities, to encourage post-secondary institutions to do more midstream and applied research projects in key technology areas. The scheme to fund technology transfer work of six universities will be extended to 2018-19.

Start-ups, Fintech

  • The Government will set up a HK$2 billion (EUR 234.1 million) Innovation and Technology Venture Fund, investing in local technology start-ups with private venture capital funds on a matching basis.
  • The Science Park would expand in stages, providing an additional floor area of 70,000 square metres for start-ups and other technology companies by 2020.
  • Cyberport will earmark HK$200 million ( EUR 23.41 million) to invest in its start-ups, while the Hong Kong Science and Technology Parks (HKSTP) will continue to support start-ups through its Corporate Venture Fund and incubation programmes.
  • A dedicated team, under Invest Hong Kong, will organise international events and encourage Fintech start-ups, investors and R&D institutions to set up in Hong Kong.
  • The Enterprise Support Scheme, under the Innovation and Technology Fund, will assist start-ups and financial institutions. Cyberport will set aside a dedicated space for Fintech start-ups, and roll out a designated programme to support up to 150 Fintech start-ups over the next five years. It will also arrange for 300 university students to join Fintech training camps at overseas universities.

Creative industries

  • Mr Tsang said creative industries are part of the new order, and that Hong Kong would continue to support their healthy growth. This includes according priority to assisting start-ups and nurturing talent through the HK$400 million (EUR 46.83 million) injection into the CreateSmart Initiative.
  • A variety of initiatives will also be launched, or enhanced, to promote the fashion, design and film industries.

Emerging markets, Belt and Road, trade and investment agreements

  • Emerging markets along China’s Belt and Road routes are likely to become the new impetus for the future development of Hong Kong. The Government will continue to deepen understanding of these new markets among Hong Kong business. The inaugural Belt and Road Summit jointly organised by the Government and the Hong Kong Trade Development Council will be launched in May.
  • The Government will continue to pursue trade and investment agreements to expand commercial and trading networks, creating more favourable conditions for Hong Kong enterprises.
  • Negotiations for a free trade agreement (FTA) between Hong Kong and the Association of Southeast Asian Nations (ASEAN) would likely be concluded this year, and the Government would seek to participate in the FTAs that have been, or will be, concluded between the Mainland and other countries.

Financial services

  • The Government is seeking to attract more multinational and Mainland enterprises to establish corporate treasury centres in Hong Kong. To that end, the Government has introduced a bill into the Legislative Council (LegCo) that would, among other things, reduce the profits tax of qualifying corporate treasury centres by 50%.
  • The Government submitted a bill into the LegCo to provide a legal framework for introducing an open-ended fund company structure to further diversify the fund domiciliation platform in Hong Kong.
  • The Government would strengthen efforts to highlight Hong Kong’s edge in developing green financial products.
  • Following the success of the two sukuk issuances over the past two years, the Government plans to issue a third sukuk in a timely manner.
  • Many senior citizens are looking for investment products with steady returns. To encourage the sector to tap into the immense potential of this silver market, the Government will launch a pilot scheme to issue a Silver Bond this year and next year, targeting Hong Kong residents aged 65 or above.
  • Another iBond issue, of up to HK$10 billion (EUR 1.17 billion), would be launched in due course, following the success of five previous issuances since 2011 under the Government Bond Programme.

New strategy and support for the tourism industry

The tourism industry will move towards diversified and quality-driven high value-added services, with a view to attracting more high-spending overnight visitors to Hong Kong and not just increasing visitor numbers.

Licence fees for travel agents, hotels and guesthouses, restaurants and hawkers would be waived for one year.

The scale of major events would be expanded this year.

For full details of the 2016-17 Budget, please go to:
http://www.budget.gov.hk/2016/eng/index.html

For more details on China’s Belt and Road Initiative, please go to:
http://beltandroad.hktdc.com/en/index.aspx

For more details about the Belt and Road Summit in Hong Kong on 18 May 2016, please go to: http://www.beltandroadsummit.hk/en/index.html

E-newsletter issued by the Hong Kong Economic and Trade Office, Brussels

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