Q Will China’s slowdown affect Hong Kong?
A It is a healthy dose of mitigation of an economy that is otherwise growing far too fast for its – and the world’s – own good. As far as Hong Kong is concerned we don’t feel it. Whenever [the markets] speculate the renminbi is going to revalue, we see the Hong Kong dollar go up. In many ways, we are a proxy hedge to the mainland. In that sense, we have not felt any significant reverberation from the mitigating measures.
Q What would happen to Hong Kong if the renminbi revalued?
A We are linked with the US dollar, so theoretically anything that happens with the renminbi will directly affect Hong Kong. But because we are a proxy hedge, I do not think we will come through it completely unscathed. The effect will be felt probably in the financial markets but not in the currency market because the link we established in 1983 [with the US dollar] has served us well, so we have no intention of reviewing it.
Q How important is the oil price for Hong Kong?
A Directly very little, because we are dependent on oil to a very small degree – basically, the transportation sector. Otherwise our power is gas, some coal and nuclear. But because Hong Kong is a very open economy we are subject to fluctuations and the volatility of the world economy. So indirectly we will be affected. Internally, our calculation is that any $10 rise in oil prices, sustainable for 12 months, will mean about a 0.4% reduction in our GDP. [The US and China are Hong Kong’s largest trading partners. They are the two largest oil importers in the world].
Q What are government plans to increase Hong Kong’s competitiveness following the publication of the World Economic Forum’s competitiveness report, where the country was ranked 21st?
A Because we are very market-oriented our role is to ensure we provide the best infrastructure and the freest regulatory regime that is credible and has integrity to allow business the greatest degree of freedom to operate. Therefore there are certain sub-indexes in the report where we did not perform well, for example in technology. The places where they are successful [in technology] in Asia all have heavy government subsidies – Singapore, Taiwan. In Hong Kong the government has very little support for any single sector. We do have some support for technology but it pales in comparison to others.
There are certain sub-indexes in the [World Economic Forum] where we will perform poorly because of our free market approach. But if you look at other sub-indexes we perform strongly. But the report is a good reference. In economic freedom and infrastructure we score very, very high. In the ones where we score low we know why and we consciously are there.
Q What are your issuance plans for Hong Kong government paper?
A In my March budget I announced we would issue HK$20bn ($2.6bn) of paper for three purposes. [First], to give us more flexibility in managing our finances. Because we are a creditor economy we don’t have to do this. Second, we want to offer small depositors another choice for a stable income stream because a lot of Hong Kong’s small depositors are earning 0.0001% interest in the bank. This is [depositors’] hard-earned money. The response has been very good.
The third reason is we want to send a message to the market that we will start issuing bonds in order to facilitate more bonds in the market. If you look at Hong Kong as a financial centre, we have very strong banking sector and a very strong equity market. As far as bonds are concerned it is still not that well developed but we have the infrastructure in place for various issuers – not necessarily from Hong Kong – to facilitate the development of a financial centre.
Q There seems to be a better political climate – would you agree?
A I would say, as a government, it is our duty to canvass and listen and consult, and to be as proactive as possible in listening to the views of the people. And to do things that we feel are right but at the same time to be able to explain the policies as much as possible.
In most Western democratic government, the voices of the people is in the vote. They can vote [governments] out. In our system it is somewhat different, people have a vote but they vote people into the Legislative Council, who are their proxy. But they can’t vote a government out per se. In that sense, we will have to walk that extra mile in order to convey our views and policies and formulate our policies. I did that in my first budget.
Q How soon might we see universal suffrage in Hong Kong?
A In the Basic Law it is written that there will be a universal suffrage but it does not have a timetable. It just says let the Hong Kong people decide after 2007/2008. Whatever timetable they decide for the election of the Chief Executive [head of Hong Kong’s government], it will need the approval of the National People’s Congress Standing Committee (NPCSC) [of China]. For the election of Legislative Council members, they will have to report to the NPCSC. So the National People’s Congress does have a say in this. After 2007/2008, currently, April 2012 [is favoured to be the time for universal suffrage] as that is the date of the next Legco elections.
Q What are you doing to deal with the growing divide between the rich and the poor in Hong Kong?
A [This divide] is growing across the world. Poor countries are doing worse and rich countries are doing better. In a globalised economy, those who are equipped and innovative and competitive will earn more money. Those who are less equipped are finding it increasingly difficult.
We will focus on our education. In our budget cuts, education survived with no cuts because this is the way to meet the challenges of the knowledge economy. We will focus on our fairly comprehensive safety net for those who are needy.
