Declaring that the Chinese territory's economy is at "a critical stage," Chief Executive Tung Chee-hwa on Monday announced a $4.1-billion rescue package to ease the effects of the region's financial crisis on Hong Kong.
In a hastily called live television broadcast, Tung warned that Hong Kong appears to be headed for a recession, and he unveiled measures to bolster the property market that underpins the economy.
Although Hong Kong's economy had shown signs of slowing last year, it has been clobbered by the Asian economic crisis, which has dried up crucial investment capital and tourism. Hong Kong's official unemployment rate is at a 15-year high of 4.2%, the stock market has dropped 50% since last year's high and property prices have nearly halved as well. Hong Kong's credit rating is under review for a possible downgrade, the rating agency Standard & Poor's said Monday.
"The effects of the turmoil are more serious and far-reaching than we anticipated," Tung said. Measures to stop the slide include freezing government land sales for nine months to boost demand for property, providing home starter loans and allowing tax exemptions on property and profits.
Tung acted after intense public pressure to stimulate the economy. The government has accumulated nearly $100 billion in reserves for "a rainy day" but has been reluctant to expand social-welfare programs.
"Well, this is our rainy day," said a social worker, Daniel Ho Wai-yuk.
The turning point may have come with pressure from real estate developers, who have complained that a government plan to provide more subsidized housing is worsening the already weak demand. On Monday afternoon, developers threatened to start boycotting government land sales if Tung did not halt the program. Tung's announcements came soon after, and he was careful to note that common people as well as big developers were being hurt by plummeting property prices.
An editorial in the South China Morning Post this morning agreed. "It may be hard in these straitened times to feel sympathy for tycoons," it said. "Still, the prosperity of [Hong Kong's] major companies is intrinsic to the well-being of Hong Kong. If Mr. Tung's measures help the business bottom line, this will, quite simply, aid in curbing rising unemployment and encourage those who form the territory's lifeblood."
Concern about the economy has created a coalition of unlikely political partners, ranging from pro-China parties to their rival opposition groups. Last week, party leaders joined to demand action from the administration to ease the pinch on pocketbooks. Some of their proposals, such as a property-tax rebate, were adopted by Tung.
"I think there will be a lot of applause," said Tsang Yok-sing, chairman of the pro-China Democratic Alliance for the Betterment of Hong Kong. "I think the package will give a positive message to people that the government cares not only in words, but by taking action to keep the people happy."
* STILL SLIDING
The U.S. attempt to boost the yen is failing and options are narrowing. A1