Governing Asia's Financial Hub: Reflections of Outgoing Hong Kong Chief Executive
Tsang, Donald, Harvard International Review
Hong Kong's vibrant economy has avoided recession amidst the global financial crisis, but the effects of the worsening European sovereign debt crisis are starting to show. How is Hong Kong's economy being affected? How should the government respond?
Hong Kong is a small and open economy that is fully plugged into the global market, so the problems in the United States and Europe will inevitably affect us in areas such as trade and investment flows.
So far, trade has held up reasonably well and investment flows have remained strong. We continue to play an important and unique role in the ongoing reforms taking place in Mainland China, which provides a pretty solid backstop to our economy and helps smooth out some of the disruptions that might be experienced elsewhere in the world.
We have weathered the crises reasonably well due to the feet that we live within our means, keep a close eye on bank lending and supervision, and have been pushing forward initiatives to broaden the base of our economic development. We have seen some mild inflationary pressure and are tracking that quite closely. But at the same time, there has been some wage growth across the board which has counter-balanced that inflationary pressure.
In times of such uncertainty, we take both short-term and long-term measures.
In the short term, for example, we provide targeted financial relief for low-income families or loan guarantees for small and medium enterprises finding it difficult to secure lines of credit from the banks. The main aim is to help people and businesses push through the trough.
Longer term, we continue to invest heavily in infrastructure. An important and largely unique aspect of our infrastructure spending is that we fund our projects entirely from reserves, which means we do not borrow any money which then becomes a burden on future governments and future generations. These projects not only help upgrade the cityscape and enhance efficiency and competitiveness, but they also create jobs across a range of income levels and professions during construction
Plans are well advanced for new developments that will transform our iconic harbor front into a much more vibrant and accessible asset. New cultural, tourism and sporting landmarks will be developed, along with an entirely new waterfront on Hong Kong Island and a new central business district centered around the old airport site at Kai Tak.
Major new transport links to Mainland China are also underway, including the Hong Kong section of the national high-speed rail network and a 30-plus kilometer bridge to Macao and Zhuhai.
Even if we hit some bumps along the road in 2012 or the year after, we have put in place much stronger foundations for our future growth and development.
The Heritage Foundation has consistently ranked Hong Kong as the world's freest economy for the past 17 years. How can this level of openness be sustained?
Economic freedom is about more than just making it easy to trade or to do business. It is about your mindset and the systems you have in place to ensure the free and smooth functioning of the market.
Our constitutional document, the Basic Law', protects a whole range of rights and freedoms that are essential elements for economic freedom to take root and flourish. These include equality before the law, freedom of the press and information, freedom of communication, freedom of movement and travel, freedom of occupation, and freedom to engage in academic research and artistic creation. These rights and freedoms are jealously guarded by the people of Hong Kong because we know they are absolutely vital for our success as a free and open society, as well as a free and open economy.
An entire chapter of the Basic Law deals with the economy. It impels us to protect property rights; maintain our low-tax system; live within our means; safeguard the free operation of the financial markets; ensure the free exchange of currency, gold and securities; pursue a policy of free trade; and safeguard the free movement of goods and capital. …