The day after Hong Kong Chief Executive Tung Chee Hwa delivered his long-awaited annual policy address, which was meant to re-start the territory’s stalled economy that has been in a slump for over 50 months, the stock exchange reacted by shedding more than 57 points.
If Tung was looking for a vote of confidence, he was obviously not going to get it – from neither the stock market nor his usual critics.
However, the white-haired Hong Kong leader was not looking for their support when he delivered his 65-minute speech at the Legislative Assembly on Wednesday as Tung did some plain talking which did not please many people.
“The unemployment rate will remain high for long periods, the income of some people will drop and the income gap will grow and people will inevitably find it difficult to cope and may feel insecure.
“However, we have to move on and not indulge in nostalgia. Nor should we seek to turn back the clock,” he warned about his plan to revive the territory’s economy.
In his speech, entitled “Capitalising on our Advantages, Revitalising Our Economy,” Tung pointed out that the economic prognosis on Hong Kong was not very good if the present situation was allowed to continue.
Since he took office in 1997, the territory has been in a tailspin with deflation lasting a record 50 months, property prices falling by 60% and unemployment at over 7%.
Many analysts and the public blamed Tung for the problems by accusing him of either being unwilling or unable to take action to reverse the process.
As if in reply to these criticisms, Tung announced that he and his ministers would voluntarily cut their pay by 10% in April to save HK$6mil (RM2.95mil) a year as part of several measures that he said were required to put Hong Kong back on track.
Tung made it clear that everyone must play a part to help the government cut costs as well as to raise revenue. He reiterated that he planned to cut government spending by HK$20bil in the run-up to the end of his term as Chief Executive in 2007.
He also announced the freezing of all civil service recruitment from April and cutting its workforce by 10% to around 160,000 by 2007 through retirement and natural wastage. Civil servants’ salaries make up 35% of government spending.
However, it is learnt a second voluntary retirement programme for civil servants will be launched soon. The details, including the compensation package which is said to be less attractive than that of the first round in 2000, will be tabled for discussion at the Executive Council meeting on Tuesday.
After months of denying the need to do so, he announced that taxes would be raised, which would sacrifice some of Hong Kong’s advantage of being a low tax regime, to reduce the government’s ballooning deficit.
The spiralling government costs and high deficit, Tung said, would affect Hong Kong’s credit rating which in turn would affect investors’ confidence and this would only make matters worse.
With the budget deficit expected to hit HK$70bil (RM34.4bil) by the end of March, concessions on profit tax and other taxes aimed at the middle class are going to be increased. Government fees and charges will likely follow suit.
“This (tax increases) will be unpopular but everyone must play his part,” Tung said. However, he refused to reveal the actual tax initiatives he had in mind, saying Financial Secretary Antony Leung would announce them in his budget in March.
The Hong Kong boss also examined how the territory was able to achieve rapid growth previously and the causes for the downturn.
“The rapid growth of our economy in the past two decades has been due mainly to our seizing the opportunities provided by the opening up of the mainland. The relocation of Hong Kong’s manufacturing sector across the boundary enabled our successful transformation into a service-oriented economy.
“For various reasons, a bubble economy emerged in Hong Kong at that time and gave rise to superficial prosperity – a phenomenon not based entirely on increased productivity, but mainly driven by the combined effects of surging asset values, wages and prices.
“This in turn led to inflated costs, which seriously affected people’s livelihood and weakened Hong Kong’s competitiveness. Many of our citizens speculated on stocks and property and this quick money mentality undermined their entrepreneurial spirit. No place on earth, however well endowed, could sustain a growing bubble over a long period of time. The question was no longer whether a crisis would strike, but when, how serious and for how long. The Asian financial crisis in 1997 punctured the bubble, precipitating our economic reversal,” said Tung.
The way forward, Tung emphasised, was to capitalise on Hong Kong’s four economic pillars – finance, tourism, logistics and services – while making efforts to develop the arts, film and other creative industries.
Besides budgetary measures, he also stressed that closer economic co-operation with the mainland, especially the Pearl River Delta, as the way of leading Hong Kong out of its economic woes.
Tung said discussions with the Central Government would be completed by June on how to cement this plan.
He said co-operation with the Pearl River Delta would go beyond infrastructure and environmental protection issues to businesses and other areas that ultimately would secure the free flow of capital and manpower throughout the region.
“A city is simply not strong enough to compete on its own. Hong Kong must pool its strength with other cities in the region. After feeling our way over the past few years, I now believe we have set out on the right track. The way forward is realistic and practicable.”
He also revealed that the Chinese Government was looking actively into the proposal to build the bridge between Zhuhai, Macau and Hong Kong which Tung admitted was vital to the economic co-operation plan.
Analysts noted that Tung had finally conceded that Hong Kong’s economic difficulties were far from over although he used the phrase “I am confident” nine times in his speech. They cited his departure from his usual optimistic approach in his previous five speeches and instead acknowledged that Hong Kong’s economy was facing difficulties that were unprecedented since World War II.
However, some legislators and academics criticised Tung for failing to provide more concrete measures to boost the economy and help the needy.
Democratic Party chairman Dr Yeung Sum said the speech was Tung’s worst as it “mostly avoided details and focused on broad strategy that had already been predicted.”
“It was the most empty in content. Hong Kong’s biggest problem is not external but the bad governance of Tung. He cannot see to people’s needs and has left the people,” Dr Yeung said.
Unionist legislator Lee Cheuk Yan, who also condemned the speech for not helping workers, said he was disappointed with what he thought was not a policy address but an economic report to foreign investors and the business sector.
“From the beginning to the end, I did not hear anything on the crucial issues of unemployment, the crucial issue of the confidence crisis, the crucial issue of social cohesion and social inclusiveness,” he added.
Michael DeGoyler, an associate professor in the Government and International Studies Department of Hong Kong Baptist University, also found that Tung’s speech lacked details. However, he welcomed the changes because the previous ones were too long and so boring that many legislators fell asleep listening to it.
“The chief executive has left the details to his ministers to flesh out at later and other forums.
“This was more like a US President’s State of the Nation Address although it was made at the wrong place and time,” DeGoyler said, pointing out that the speech was given at 2.30pm when most people were at work and Tung probably missed out any opportunity to appeal directly to the people.
“While the previous speeches were a ‘F’, this time it probably merited a ‘C’,” said the professor.
All that now remains is to see if Tung’s long-term economic revival plan passes the more important test – that it will actually work and restore Hong Kong to its glorious past.
o Wong Sai Wan is Editor, East Asia Bureau, based in Hong Kong (e-mail: email@example.com )