Hong Kong plans US$1.5 billion in aid

Taipei Times-BLOOMBERG Thursday, Apr 24, 2003,Page 12

SARS FIASCO: The financial crisis caused by the viral outbreak will be alleviated by loan guarantees to protect jobs and will help small, struggling businesses survive

Hong Kong Chief Executive Tung Chee-hwa plans an HK$11.8 billion (US$1.5 billion) package of spending and tax rebates to bail out companies after a deadly virus slashed consumer spending and tourist arrivals.

The plan, announced by Tung at a press briefing, includes waivers for property, sewage and water charges, plus loan guarantees to protect half a million jobs in the tourism, entertainment, retailing and catering industries. The government will rebate HK$2.3 billion of salaries tax to encourage spending.

Like similar steps taken by Singapore a week ago, the measures aim to help small businesses and companies such as Cathay Pacific Airways Ltd, hotelier Shangri-La Asia Ltd and fast-food chain Cafe de Coral Holdings Ltd. People are staying home to avoid exposure to severe acute respiratory syndrome, or SARS, which has infected 1,458 people and killed 105 in the city in two months.

"It's already too late, the damage is already being done," said John Koh, a fund manager at Daiwa Asset Management Ltd, which runs US$200 million in Asia.

"How many companies are still around to apply for these benefits?" he said.

Tommy Cheung, a Legislative Council member representing the catering industry, said more than 100 restaurants have shut since the outbreak of the disease. The number of tourists visiting Hong Kong plunged by a third between mid-March and mid-April from a year earlier.

The Hang Seng Index fell 52.31, or 0.6 percent, to 8519.60, the lowest since Oct. 9, 1998, at the 4 pm market close. The index dropped 8.6 percent so far this year, the world's fourth worst-performing benchmark index behind those of India, Japan and Venezuela.

Tung has been criticized by opposition lawmakers for responding too slowly to the outbreak. China's leaders, who control the selection process that put Tung into his job, are questioning local politicians behind the scenes about his leadership abilities, the South China Morning Post reported.

Tung said he needed to balance the needs of business with the government's goal of reducing its deficit, forecast to be HK$68 billion in the year that began April 1.

"The measures seek to relieve the short-term impact of atypical pneumonia on our economy," Tung told a press briefing.

"They have also taken into account the medium-term need to make sure our budget is in balance," he said.

SARS has caught Hong Kong as the city was rebounding from its second recession in five years. The government said it will cut its previous 3 percent economic growth forecast for this year.

Hong Kong's budget deficit will be wider and growth will be slower this year because of SARS, Financial Secretary Antony Leung (±Á¿A™Q) told reporters. He said the government still expects to balance its budget in the year ended April 2007.

Some investors said reviving growth should be the government's priority.

"A one-off package is a good idea," said Andrew Salton, who helps manage $2.5 billion at Standard Life Investments Ltd.

"I wouldn't be concerned about the impact on the deficit," he said.

Under the government's plan, commercial rents in public housing estates will be reduced by as much as half for three months. Rates, water and sewage charges will be waived for up to four months for everyone, and license fees for the worst-affected industries will be scrapped for a year. Residents will each receive up to HK$3,000 via salaries tax rebates.

In the hotel and leisure industries, which have been worst-affected by the outbreak of the disease, the city will provide HK$3.5 billion in loans to pay salaries and protect jobs. The government also plans to create 21,500 temporary jobs and waive license fees for the transportation sector for a year.