Hong Kong U-Turn Wins Tsang ‘One-Night Stand’ Budget Reprieve

HK Financial Secretary John Tsang
John Tsang, Hong Kong's financial secretary. Photographer: Dale de la Rey/Bloomberg

Hong Kong Financial Secretary John Tsang won approval for HK$62.2 billion ($8 billion) of handouts after caving in to pressure from lawmakers for cash and tax rebates amid widening inequality that is driving dissent.

Tsang’s budget passed by 33 votes to 19 late last night after his U-turn last month secured the backing of pro-Beijing members of the Legislative Council. All 6.1 million Hong Kong permanent residents will get a HK$6,000 handout, while 1.5 million taxpayers will get a rebate of the same amount.

The measure was like a “one-night stand” with a government that behaved irresponsibly to win short-term support, Wong Sing-chi, a Democratic Party lawmaker who voted against the bill, said March 25. Chinese Premier Wen Jiabao said March 14 that Hong Kong must resolve “deep-rooted conflicts” and close an income gap that’s at its widest since the British colony returned to China in 1997.

“We will see more protests against this seemingly lame-duck administration,” said Joseph Cheng, a political-science professor at the City University of Hong Kong. “There’s a rising risk of policy paralysis as the government is seen as rather incompetent in its handling of the budget. They don’t seem to realize the substantial grievances underlying their nice statistics.”

Hong Kong’s gross domestic product expanded 6.2 percent in the three months ended Dec. 31, and at the fastest pace in four years for the whole of 2010. Tsang this week estimated fiscal reserves of HK$583 billion, or 31 percent of gross domestic product, by the end of March next year.

Unemployment Falling

The jobless rate fell to 3.6 percent in the three months through February, the lowest since the start of the global financial crisis in 2008.

Still, inflation will accelerate this year to the highest since 1997, spurred by food-price gains and increasing rental costs, the government said. Hong Kong home prices have surged 69 percent from the beginning of 2009 to reach the highest level since 1997, according to Centaline Property Agency Ltd.

After Tsang announced his revised budget, Hong Kong police arrested more than 100 people in clashes with protesters demanding more help for the poor. Hong Kong’s top official, Chief Executive Donald Tsang, was assaulted last month by protesters who said he was ignoring the plight of the poor. Demonstrators stormed a public event by Eva Cheng, secretary for transport and housing, on April 10 to oppose an increase in subway fares.

Rags, Riches

The median annual income for the poorest 10 percent of Hong Kong’s families fell to HK$37,200 ($4,788) last year, from HK$50,700 in 1997. Earnings for the richest 10 percent surged 13 percent to HK$961,800 from HK$849,000, data compiled by Bloomberg show.

Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd. controlling shareholder Li Ka-shing, 82, said last month the Hong Kong property market will remain “healthy, barring unforeseen adverse changes,” after Cheung Kong reported a 35 percent increase in net income last year. Li, whose legendary rise from plastic-flower seller to become Hong Kong’s richest man earned him the moniker “Superman,” oversees an empire spanning ports, real estate, hotels, retailing, infrastructure and energy.

“Fewer people now believe that they can aspire to be the next Li Ka-shing, and people now expect the government to provide better social security at the expense of the super rich,” said Joseph Lau, a senior economist at Societe Generale SA in Hong Kong. “The government should be less laissez-faire and more pro-active in policy making than it has historically been to improve the standard of living,” Lau said.

‘Property Bubble’

Hong Kong Monetary Authority, the de-facto central bank, said this week that it is concerned about the risk of a “credit-fuelled property bubble.” The bank has tightened rules on mortgage lending three times since October 2009.

Lawmakers of Democratic Party and Hong Kong Confederation of Trade Unions on March 9 blocked the passage of a bill providing temporary funding for the government in an unprecedented move, demanding the government to build government-subsidized and affordable homes. The lawmakers later approved a revised plan.

“When we have the poor living in cage homes and struggling to make ends meet by collecting cardboards on the street, how could we proud of the economic prosperity in the city?” said Christine Fang, chief executive at the Hong Kong Council of Social Service, an advisory body to the government.

Tsang scrapped his first proposal to add money to residents’ pension plans and said he would instead inject HK$1.5 billion into a fund that aims to help the poor.

“These relief measures aim to reduce the stress for residents and they have been well received,” Tsang said this week.

At last month’s National People’s Congress in Beijing, Wen put fighting inflation and soaring home prices at the forefront of government policy this year to head off social instability. The United Nations’ world food prices index climbed to a record in February. Costlier food this year contributed to riots across northern Africa and the Middle East that toppled leaders in Egypt and Tunisia.

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