A look at the Hong Kong government’s economic responses to coronavirus

A look at the Hong Kong government’s economic responses to coronavirus

As Hong Kong faces economic disruption from the coronavirus, the government has initiated three rounds of stimulus packages, totalling HK$287.5 billion (~AU$58 billion), to support the economy.[i] However, are these measures enough to support businesses and households through this period of uncertainty? This article looks at the major relief measures implemented by the Hong Kong government.

Job Retention – Employment Support Scheme:

With unemployment rising to a nine-year high, the labour market is expected to continue deteriorating as pessimistic economic conditions impact many business sectors.[ii] To help alleviate the situation, the government has announced an HK$80 billion Employment Support Scheme to help companies retain employees. Under the scheme, the government will subsidise 50 per cent of an employee’s salary for six months, up to HK$9,000 per employee per month.[iii]   

Following the suit of other countries, this scheme is an effective way to incentivise companies to avoid redundancies by subsidising a proportion of the labour cost. Furthermore, the Hong Kong government will publicly disclose all employers that make a successful application under the scheme, as well as revealing the amount of subsidisation these employers receive. This creates transparency because the public can scrutinise the distribution of funds, thereby avoiding any misuse.

However, one of the flaws in Hong Kong’s Employment Support Scheme is the eligibility requirement. Although the primary intention of the scheme is to ensure companies do not implement redundancies during the subsidy period, the government could have imposed additional eligibility criteria to make the scheme more effective. For instance, the government could have required companies to show a loss of turnover due to the pandemic. This ensures that funds go toward supporting businesses most impacted by the pandemic, particularly small and medium enterprises (SME) who may otherwise be forced to lay off workers.  

Cash Handout:

To boost local consumption, the government has also announced a HK$10,000 cash handout for all adult permanent residents of Hong Kong.[iv]  

Although the advantage of the policy is a quicker implementation (everyone meeting the requirement is immediately eligible for the payment), its effectiveness depends on the marginal propensity to spend the one-off cash disbursement. Given that uncertainty surrounding the economic impacts of the coronavirus, it is more likely that people will save the cash disbursement for precautionary reasons. Moreover, the eligibility of the cash handout means that residents who no-longer live in Hong Kong and the ultra-rich are eligible to receive the payment. This creates an issue because some of the cash disbursement will spent overseas instead. Additionally, the cash disbursement is less likely to be spent by people with high income than low income, thereby limiting the effectiveness of the policy to stimulate the domestic economy.

Compared with a cash handout, the government should have adopted something that is more targeted. The cash relief measures, which amount to HK$ 71 billion, could be used to support small and medium-sized enterprise that may not have enough funds to maintain current employment levels. Likewise, a monthly subsidy targeted at consumption would help ease the concern that stimulus is leaving Hong Kong. Similar to the policy implemented in Macau, the government could instead distribute a HK$ 10,000 consumption e-vouchers to every Hong Kong resident. [v] Each resident would receive a card, which can only be used in Hong Kong.

Other recommendations:

Other than the above major measures, the Hong Kong government has also implemented sector-specific and individual measures to combat the economic storm. Nonetheless, one recommendation would be to allocate a greater proportion of funds toward supporting the industries most impacted by the coronavirus. From Figure 1, the recent increase in the unemployment rate has been mainly driven by the tourism, manufacturing and construction sectors. These industries were most significantly impacted by the lockdown.

Likewise, it is not sufficient to call for landlords and developers to take “social responsibility” and offer rent reductions. The Hong Kong government should offer clear guidelines as to the level of reduction that private landlords should implement and provide landlords with incentives to make these rent cuts.

[Figure 1] Census and Statistics Department – The government of the Hong Kong Special Administrative Region.

The economic impacts of the coronavirus pandemic are devastating to Hong Kong business and households. The Chinese economy is in a downward trajectory and expansionary measures like the launch of Individual Visitor Scheme in 2003 are unlikely. The Hong Kong government has traditionally taken a conservative approach in its fiscal spending in following Article 107 of the Basic Law, Hong Kong’s mini-constitution, to “strive to achieve a fiscal balance, avoid deficits”.[i] However, at this unprecedented time, additional spending would provide much-needed support to  hard-pressed businesses. In the short term, it now depends on how swiftly the government can get money to those that need it most.

[i] The Government of Hong Kong Special Administrative Region. (n.d.). The Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China. Retrieved from https://www.basiclaw.gov.hk/pda/en/basiclawtext/chapter_5.htm

[i] CPA Australia. (2020). Summary of the Hong Kong Government’s Economic Responses to COVID-19. Retrieved from https://www.cpaaustralia.com.au/-/media/corporate/allfiles/document/covid-19/government-advice/hong-kong-government-response.pdf?la=en&rev=5df6ff01e10e4bae81faefd4935b16d1

[ii] Ng, K.C. (2020, March 17). Hong Kong jobless rate hits nine-year high as coronavirus crisis and months of unrest take toll. South Morning China Post. Retrieved from https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3075626/hong-kong-jobless-rate-hits-nine-year-high

[iii] The Government of Hong Kong Special Administrative Region. (2020). HKSAR Government’s package of measures to support individuals and businesses affected by COVID-19. Retrieved from https://www.coronavirus.gov.hk/pdf/fund/CE-Measure-12-eng.pdf

[iv] Lee, Y.N. (2020, February 28). Hong Kong’s cash handout could boost the economy by 1%, says financial secretary. CNBC. Retrieved from https://www.cnbc.com/2020/02/28/cash-handout-could-boost-hong-kong-economy-by-1percent-financial-secretary.html

[v] Zhang, K. (2020, February 14). Coronavirus: Macau will give residents 2.2 billion patacas worth of vouchers to boost economy once outbreak is over. South Morning China Post. Retrieved from https://www.scmp.com/news/hong-kong/politics/article/3050557/coronavirus-macau-will-give-residents-22-billion-patacas