Financial Secretary Paul Chan Mo-po (right) attends the Straight Talk show on TVB, Feb 28, 2023. (PROVIDED TO CHINA DAILY)
Financial Secretary Paul Chan Mo-po is on our show this week.
In sharing with us his rationale for the Budget, Chan says the government must continue to maintain property supply despite a market slowdown in order to meet a return in demand in the future. He also says the Jockey Club can afford to contribute to Hong Kong through the current difficult period. He also says the city’s current debt-GDP ratio is low and there's room to raise debt in order to invest in infrastructure etc.
Check out the full transcript of TVB’s Straight Talk host Dr Eugene Chan’s interview with Financial Secretary Paul Chan.
E Chan: Good evening. This is Eugene Chan on Straight Talk. Our guest this evening is Financial Secretary, Paul Chan. He needs no introduction and was on this show about a year ago to talk about the 2022 Budget. Last week, Chan released the 2023 Budget with the theme ‘leaping forward steadily, together we bolster prosperity under our new vision’. So, we have invited him again to tell us how far Hong Kong will be able to leap with this new budget. Welcome FS.
FS: Hi, Eugene. Good to see you.
E Chan: FS, I know that when you planned the budget, you have a few things on your mind. Firstly you want to take care of the needy, you want to stimulate the economy, and to invest in the future. But when I look at the 2023 budget, it has given us a larger-than-expected deficit of nearly HK$139.8 billion this year and HK$54.4 billion next year. So, with only 12 months’ worth of spending on our kitty, can we afford this?
FS: Certainly, certainly. If you look at our medium-range forecast, from the year 2025-2026, we will be returning to surplus situation. Both on the operating account, as well as on the capital account. Well, the current years’ deficit was because of, firstly, the COVID situation, which has taken longer time than expected to recover; and secondly, the depressed export situation, very weak external environment; as well as the disruption to the cross border transport between Hong Kong and the mainland, and the slower growth of mainland. But all these situations will improve, and I am confident that our economy will grow much faster this year, and next year. On the longer term, going to be more sustained, faster growth.
E Chan: Right. Paul, I mean it is great to know that you are in full grasp of the situation. But when I look at your annual capital works expenditure that you just mentioned from 2024-2028, we end up with a fiscal reserve of HK$983.7 billion by the end of March 2028, which means an increase of our reserve, which is a good sign. However, which is like 14 months of government expenditure, like the 12 months no, but this is based on the assumption of, you just mentioned, the medium growth rate of 3.7 percent. Right now, the last budget you are basing on is 3 percent only.
FS: True.
E Chan: And currently we are only on 2.8 percent. Are we too confident that we will be able to get 3.7 percent? And what if we don't?
FS: Well, we have taken into consideration a number of factors. Number one, the mainland’s economy is recovering very fast, and on a sustained growth basis. In fact, they will be growing at a pace much faster than the western countries. With the reopening of the mainland, the rebound has been very strong. And secondly, although at the moment Europe is pretty challenging, and US to a lesser extent. But after going through this difficulty, our assessment is that they will be back to their normal long-term growth trend. And on the other hand, developing Asia, including ASEAN, has been developing very fast. The economic growth is tremendous. Say for example, in the past few years, despite of global depressed demand, they are still growing very fast. And the trade between the mainland, Hong Kong, and developing Asia, has been on the rise. And in fact, overtaking European Union. So, with all this, I think the external situation, the export situation will be good. Also with the reopening of the border between Hong Kong and the mainland, tourists will come back, international tourists will come. That will help not just service export, but also our private consumption.
E Chan: Right.
FS: As well as you see the IPO market, the stock market, last year was pretty challenging globally. I am confident this year there will be not just stabilizing the situation, but is back to a growth situation.
E Chan: Certainly we hope that we will reach the 3.7 percent on average. Some have also called on the government to widen our tax base, something we have talked about for many years. You haven't really done it right now, what are your reasons behind it?
FS: Well, you know, in the past few years, everyone is suffering, no matter it is SME or average citizen. So, although we have given a very detailed examination about the different options of increasing, say for example, our salary tax, profit tax. We eventually decided to put this on hold, so, to allow people have some more breathing space. And let’s review it again next year. Given this situation and also our strategy at the moment is attracting enterprises, attracting talents, we don't want to send a contradicting signal. So, that is the current year situation, that is why we just increase betting duty because the impact is pretty limited.
E Chan: Right. Since you mentioned that, I mean you have introduced 2 new taxes, and the football betting duty to HK$2.4 billion a year.
FS: Yes.
E Chan: It is not a lot compared to our debt of like HK$140 billion this year. And many viewers have read the responses of the Hong Kong Jockey Club. They argue that they have done a lot to the community through their contribution, and by having more tax on them, they will reduce their bottom line, not only, but also damaging their business model and diminish their ability to contribute. So, what is your say to that?
FS: Well, we have given careful consideration as to the competitiveness of our betting industry, vis-a-vis the international competition. We believe by levying a time-limited fixed lump sum, that is something that the Jockey Club can afford, given their huge reserve at the moment, and they are free to adjust how they operate and how to cope with this increase in the coming 5 years. Well, it is a difficult period for Hong Kong, so everybody needs to contribute. I do hope that both the community and the Club would appreciate.
E Chan: And just now we were talking about in terms of the tax base. I mean now we have quite a so-called more narrow tax base. So arguably, you haven't got much alternative but to increase some of our taxes. I just want to bring one example, the stock trading stamp duty was increased before, and then we see the actual reduction in the trading activities. So with a similar measure on the football betting duty, do you think there will be any effect on that? And it end up backfiring on the whole system?
FS: I don't think so. And I think it is inappropriate to join casual relations between an increase, small increase on stamp duty and a turnover of the stock market because over the past 2 years, globally the equities market has been going through a pretty challenging environment. So, we will keep in view the changing situations about the stock market. But for the betting industry, looking at their growth trend, looking at the neighbouring competition, and looking at the operating profits before expenses, I am confident this HK$2.4 billion additional duty is something that they can afford.
E Chan: Right. Let's look at some of the middle class, which the majority of the population is. You have a new program called ‘Happy Hong Kong’, we had ‘Hello Hong Kong’ before.’
FS: Yes.
E Chan: It is sort of coming in pairs. So, what exactly is ‘Happy Hong Kong’?
FS: Well, you know, ‘Hello Hong Kong’ is very much externally facing, trying to attract business, tourists, as well as tourists to come here for sightseeing. Well, the objective of ‘Happy Hong Kong’ is to organise more activities for Hong Kong people to enjoy, to bring their family along, to have some good food, to have some good games. So, apart from the government organises all these events in the different districts, we have the support of the West Kowloon Cultural District, the Ocean Park, Disneyland, Science Park, as well as Cyberport. They are all going to organise events for families to go, for exploring different interesting aspects of our city.
E Chan: Right. Before the break I want to ask you one area that I am sure you will find it not easy to handle, it is what we call the consumption vouchers. As I was reading all the people's comments, I know you are not in the so easy… difficult… I mean quit difficult position to say because you can’t please everyone. Some say that it is not enough, from HK$10,000 to HK$5,000; some people will say that why are we still having the need of the vouchers, especially now we are kind of in the recovery. So, my question to you is can we put some fine print or more precision, so that the cash will go on to stimulate the local economy, rather than overseas? The reason I bring that up is that many people say to me they will go to overseas for a trip and they use that voucher to buy a trip. So, basically the money is spent overseas. How can… have you ever thought of a way of putting the money right locally, where the money will be value added to the industries? If you go and buy a handphone, basically it is a foreign-made phone. So, have you thought about that?
FS: Well, if that argument is valid, going to the restaurants, all the materials are imported, given Hong Kong is a small open economy. Basically we import the best from any part of the world.
E Chan: True.
FS: You know, Hong Kong people prefer to have the freedom of choice. And I think it is important for us to stimulate consumption, as well as giving people the experience of, the pleasure of spending. Not to mention the fact that in fact the tourism industry, the travel agents, in the past few years, have been suffering. So, in a way, they also want the support from the government and the community.
E Chan: Right. Thank you for explaining to the viewers, that is something that many people ask – why can’t there be more precision, but obviously you have thought about it. So, FS, let’s go to a break now, and we will be right back. And do stay with us.
Straight Talk presenter Eugene Chan (left) interviews Financial Secretary Paul Chan Mo-po during the show, Feb 28, 2023. (PROVIDED TO CHINA DAILY)
E Chan: Welcome back! We have been talking with our Financial Secretary Paul Chan, about the government's new budget, and how fiscal balance can be best maintained. We will be talking about some of the new initiatives that the government is investing in for the future. One area that many people will be concerned is about our property market. And I know the government is planning to build a lot more housing units for use…
FS: Yes.
E Chan: …whether with or without Lantau Tomorrow. But looking at our population structure, there are some people emigrating, that has always been the case. Do we ever have… do you ever concern about the risk of oversupply? The reason being now we are promoting more businesses, more travel between Hong Kong and the Greater Bay Area. So, there will be some population shift. How can you… as I asked you earlier, how can you be so precise in terms of planning for the housing needs for the future? And that is for the money that you put in.
FS: Well, you know, number one, despite the short-term market fluctuations, it is important for us to continue to provide land supply to the market on a sustained basis, so that when the market picks up, there would be enough supply available. Well, you know, last year for the residential property market, it was orderly adjustments, down by about 15 percent. At the same time, the volume came down significantly to about 45,000 units a year, as compared to over 75,000 the year before. So, last year was an exception. Even if you make reference to 2013-2020, over that 8-year period, the average yearly transaction was about 60,000. S,o currently what is being held by the developers as completed units available for sale will be very quickly absorbed when the market returns. And we have seen stabilizing market situation. So, we will keep in view closely the market situation. And for the government at the moment, residential prices is still very high, not easy to afford.
E Chan: True.
FS: What we would like to see is orderly development.
E Chan: Right.
FS: And let the market plays. But at the same time, at the same time, we make sure we have enough in store to respond to market changes.
E Chan: So, FS, let's move to something that you have done for the future. You have earmarked more than HK$10 billion for innovation and technology.
FS: Yes.
E Chan: Which includes a new micro-electronics institute, which will produce chips for electric car manufacturers.
FS: Yes.
E Chan: This is really investing for the future, and aligns us with the mainland strategies. Can you tell us a bit more? I mean will we be a big player in this?
FS: Well, the 2 major engines for our future economic growth, obviously is innovation and technology, and financial services. So, in the budget on financial services, in areas that we have been doing very well, we need to keep ourselves at the forefront, try to innovate. So that we can continue to lead. And on financial services this year, we mentioned in particular Web3, virtual assets, as well as Greentech and Green-finance. And on the other hand, on tech, the major initiative is focusing on advanced manufacturing, artificial intelligence, health science, and health-tech. So, in applying our resources, we try to give support, not just to basic research, but also to midstream research, translation into also products and services, to build an ecosystem. And by building an ecosystem, we would be able to attract more strategic enterprises to come, and more talents to come. And that will power our economy in the future.
E Chan: Right. FS, your critics would say that we are not advanced enough in this area to rely on I&T, that is a major pillar that we don't even have enough talent. It will be a while for the area to pay dividends to us. So, what will you reply to them?
FS: Well, in the previous government, we spent about HK$160 billion in I&T. And honestly if you go to Science Park, go to Cyberport, the ecosystem is coming, pretty prosperous. Actually I went to visit some of those start-ups in Science Park. But to contribute to our economy, it is not just start-ups and ecosystem, but businesses, enterprises, manufacturing facilities, and manufacturing activities. That is why we are trying to attract such companies to come and at the same time attract talents to come, because these 2 are interactive. When you have major enterprises anchoring here, you will be able to bring a whole supply chain here, and also the talents.
E Chan: That means there are still challenges there. So, they are quite right to say that we don't have enough talents yet, but it will come.
FS: Well, what they have pointed out is perhaps historic and current situation. But eyeing on the future, this is something that we are tackling. And I am very confident Hong Kong is in a unique position to attract these people and these companies to come. And that would be helping us, in the meantime grooming our own talents, filling the gap, to sustain us, to achieve this vision.
E Chan: …people always like to give you comments, I will call them critics, I am sure you listen to them. They also say that we should rely on existing markets, like tourism, finance services, for the economic recovery, rather than gambling with new areas. So, how will you reply them again?
FS: Well, financial services, we have been doing very well. But say, for example, financial services contribute to GDP of Hong Kong about 22 percent, but employing only 7 percent of our population. Tourism, yes, contributing to about 5-6 percent, employing a bigger number of person… people, I mean. So, in that sense, if we want to provide good job opportunities, upward mobility opportunities, we need to move up the value chain and diversify our industry base. And innovation and technology is the way to come. And if we have chosen AI, robotics, health-tech, health science, as well as microelectronics, as the few areas that in the medium term, we will focus a lot of energy and resources.
E Chan: Right. FS, I mean you have pointed out very clearly that we have moved up the value chain, to keep Hong Kong abreast in the rest of the world. But are you worried about that the worsening geopolitical tensions may result in sanction on transfers of new technology to Hong Kong? This is something that we can’t control. What is your thought on that?
FS: Well, geopolitical risk is something that we have to pay attention to and manage all the time, granted. But on the other hand, under the “One Country, Two Systems” arrangement, Hong Kong is in the best position to do this. And in our past 2 years’ experience, and in particular our close encounter with international scientists, professors, I can see the opportunities of Hong Kong in attracting these people back. So, I think we stand in a good position to promote this. And that is why we put money into it to develop the infrastructure, to buy the equipment, to enable the gathering of international mainland expertise in Hong Kong, to collaborate, work together, to develop this sector.
E Chan: FS, I can feel that you are really looking to the future, and one area is green tech and green-fi. I mean… why does Hong Kong have the potential to be sort of the status as the international green-tech and green-fi center?
Well, you know, green tech globally is a global trend, and this is something up and coming. According to some research, the green-tech sector, the value of this particular sector at the moment, in 2021, is about slightly over HK$40 billion. But it will grow tremendously into 2030 by more than 10 times, the average annual growth is over 30 percent. So, this is a huge area. Green-fi in Hong Kong is leading in Asia. The total amount of green bonds and debts we issued the year before last already exceeded about $57 billion. We are in a good position to integrate all these, particularly when we look at green-tech companies. Say for example, in Science Park and Cyberport, we can bring these 2 advantages together and move it to a higher development. And this is something, in the international arena, no one at the moment is leading. So, it is an opportunity for us to lead in this aspect.
E Chan: Right. FS, there is also people expressing concern that we are investing a lot in the future, and currently, it is a high-interest rate environment. And will this result in higher government debt in the future, so they will pass on the burden to the next few governments?
FS: Don't worry about it. At the moment, the debt-to-GDP ratio of Hong Kong is about 4.5 percent. We plan to issue bonds to the order of about HK$65 billion annually in the next 5 years. At the end of 2026-2027, our debt to GDP ratio is only about 9.5 percent, very safe. But with all these money, we will be able to invest timely on various infrastructures and public works projects, so that the community can benefit earlier. And in fact by doing so, it will also release development potentials of land along those railway lines, and also make the facilities available for the tech companies that we want to attract.
E Chan: FS, the last question of the show. The budget is very forward-looking, and we are investing in the future, and you are saying that we are right in the value chain, and we should be all right. So, we come back to the title of our show today – how far forward do you think Hong Kong can leap with this budget? Simple answer.
FS: Well, this is the step in the right direction. It requires the support and hard work of the community. And in the government, we will continue to practice proactive government serving an efficient market. So, in areas that need the government to take leadership to invest, we will be very bold and proactive. But at the same time, we will leave enough room for those areas that we should allow the market to play out. With this and with the support of the community, I am very confident.
E Chan: Right, thank you. Thank you, FS Paul Chan, for coming to share with us his rationale for the budget. We certainly hope that it will enable our economy to make a leap forward beyond recovery into building for the future. And look forward to further good news throughout the year. Have a good week and good night!