In commenting on the Hong Kong CEO’s recent policy address, HSBC Global Research economists paid close attention to John Lee’s policy address and pointed to some key highlights that aim to set the islands back in its growth trajectory.
Hong Kong Chief Executive John Lee in his maiden policy address announced a slew of policy measures with a focus on attracting talent and enterprises, developing the island’s innovation and technology sector, strengthening its international competitiveness, deepening its engagement with mainland China and the world, and accelerating housing development.
While the domestic COVID-19 situation looks to be largely under control which supports a gradual domestic recovery in the coming quarters, however, the much-anticipated “re-opening” with mainland China actually depends more on the mainland’s COVID policy. For the time being, Hong Kong has more discretion on its quarantine requirements for inbound persons, and to a lesser extent, establishing a ‘reverse quarantine’ scheme, as indicated in today’s Policy Address.
That said, signs point to a domestic recovery that is underway, and HSBC expects the upcoming GDP print to show a sequential increase of 1.5% q-o-q or 0.6% y-o-y in Q3. Accordingly, this paves the way for the Chief Executive’s Policy Address to direct more focus on developing longer-term growth drivers and enhancing Hong Kong’s position as an international centre for finance and trade. The key foci for his first policy address are primarily on attracting and cultivating talent, developing Hong Kong’s innovation sector, and deepening integration with mainland China and the world.
Hong Kong’s local workforce has contracted by 140k people (about 1.9% of the population) during the last two years, which might hamper Hong Kong’s ambition to stay competitive as an international finance centre as well as weigh on longer-term growth if the trend persists. In his Policy Address, John Lee pledged to go all out to attract talent, with measures spanning from easing immigration rules for qualified candidates to providing stamp duty refunds on their housing purchases. The offering of work visas for those meeting high income or education requirements, increasing the ease of hiring foreign talent in industries with local talent shortages as well as the elimination of quota limits or extension of duration for some talent schemes should encourage more skilled foreign talent to come to Hong Kong.
Among them are, to establish the Office for Attracting Strategic Enterprises and the Talents Service Unit, earmark HKD30bn from the Future Fund for a Co-Investment Fund to attract firms to set up. Offer 2-year work visas through the Top Talent Pass Scheme; Those earning over HKD2.5million annually or have graduated from a world top 100 university with 3+ years of work experience in the last 5 years are eligible with no quota cap, while there is a 10k cap for those from a world top 100 university who do not meet the work experience requirement. Provide refund on excess stamp duties for residential property for foreigners once they have received permanent residency (at least 7 years). Caps on various employment visa quotas will be lifted or visa durations extended
On making HK an innovative tech hub, the government will set up HKD10bn in funding support for the commercialization of R&D by university research teams Increase subsidies for I&T (innovation and technology) enterprises to employ research talent by about 10%, and provide living allowances for research talents with a doctoral degree and encourage more open data exchange and expand the coverage of the 5G network.
On the international level, HK aims for inclusion into RCEP and promotes it as a functional platform for the Belt and Road Initiative. Offer tax concessions to high-value-added maritime enterprises, develop high-value-added logistics services and encourage the application of smart logistics solutions. Developing the island into an international carbon market and green finance centre and HKEX will ease listing rules around profit and trading record requirements for advanced technology enterprises next year.
In all, with growth likely seeing a recovery of 1.5% y-o-y in H2 2022, this paves the way for more policy support to focus on longer term development. Lee’s first Policy Address is an ambitious one and aims to address many of the long-standing issues to help drive forward longer-term growth. With the roadmap laid out, it now comes down to implementation.
