HK's central bank cuts base rate by 25 basis points

Dec 12, 2007 - The Hong Kong Monetary Authority (HKMA) on Wednesday lowered the base rate charged through its overnight discount window by 25 basis points to 5.75 per cent.

The HKMA's move came after the U.S. Federal Reserve cut benchmark interest rates by a quarter-percentage point to 4.25 per cent to prevent economic fallout from credit turmoil stemming from troubles in the U.S. mortgage market.

Hong Kong tends to track US rate moves because its currency is pegged to the US dollar.

The HKMA, Hong Kong's central bank, sets its base rate through a formula that includes the US federal funds rate and Hong Kong interbank offered rates.

HK cutting taxes to shore up financial centre status

Oct 11, 2007 - Hong Kong's government will cut income and corporate taxes by one percentage point to help protect the city's position as an Asian financial centre in its high-stakes race with Singapore.

Salaries tax will be cut to 15 per cent and profits tax to 16.5 per cent in 2008-2009, chief executive Donald Tsang said in his annual policy address yesterday, his first since being elected to a five-year term in March.

The reduction will widen the gap with Singapore, which in February announced a cut in its corporate tax rate to 18 per cent from 20 per cent to lure more financial-services and technology companies. Singapore's top income tax rate is currently 20 per cent.

Mr Tsang had pledged in his election campaign to cut the standard rate of salaries tax and profit tax to 15 per cent within five years.

'We will consider further profits tax relief if our economy remains robust and our public finances stay sound,' Mr Tsang said yesterday.

Hong Kong's corporate tax rate is currently 17.5 per cent, while its salaries tax is 16 per cent. The city's economy in the three months ended June 30 climbed 6.9 per cent from a year earlier after gaining a revised 5.7 per cent in the previous quarter.

Mr Tsang, who has said that his long-term goal is to preserve Hong Kong's status as Asia's top financial centre, also said that the government plans 10 major infrastructure projects in the next five years that will create 250,000 jobs and add HK$100 billion (S$18.9 billion) to the economy annually.

The plans include building an expressway linking Hong Kong with the southern Chinese cities of Guangzhou and Shenzhen, Mr Tsang said. Financing arrangements for a bridge linking Zhuhai city with Hong Kong and Macau are also being finalised, he added.

The city will also spend HK$20 billion to complete a direct road link between Shenzhen and Hong Kong's airport.

Traffic growth at Hong Kong's port, the world's second busiest container port last year, has slowed because of competition from mainland ports.

The Hong Kong government also plans to build a new rail line in southern Hong Kong Island. The line, which will cost more than HK$7 billion, is scheduled to begin operations before 2015.

Mr Tsang said that the city may also start building a line linking Shatin in the New Territories to Central, the downtown business district, in 2010.

In addition, Mr Tsang said that rates for property owners totalling some HK$2.6 billion would be waived for the final quarter of the fiscal year.

Hong Kong August retail sales rise faster on stock market, tourism

Oct 2, 2007 - Hong Kong retail sales growth accelerated in August from the previous month, lifted by rising incomes, tourist spending and improved job prospects, the government said Tuesday.

Retail sales by value increased 15 percent to 20.6 billion Hong Kong dollars, faster than July's revised 14.3 percent gain. The figure, however, was less than the 15.5 percent forecast of economists polled by Thomson IFR.

"The trend of higher retail sales will continue in coming months, especially in the last quarter because of the Christmas season," said Daniel Chan, senior investment strategist at DBS Bank in Hong Kong. "The main driving force continues to be domestic consumption and tourism."

Faster growth along with a booming stock market resulted in higher incomes for most of Hong Kong's nearly 7 million-strong population and boosted demand for computers, televisions, cameras and other electronic goods. The economy expanded 6.3 percent in the first half of the year, faster than the government's estimate.

The stock market reached record levels in August, propelled by China's announcement on the 20th that it would allow individual investors to trade Hong Kong stocks directly. The loosening of China's investment rules helped the Hang Seng Index recover from a slump that was caused by the subprime mortgage crisis that began in the US.

The key stock index rose 3.4 percent in end-August to a record 23,984 points from end-July, according to data provided by Chan.

"The overall thriving stock market in August despite some market volatilities arising from the US sub-prime mortgage turbulence, together with the further expansion in inbound tourism, also helped'' push retail sales, the government said in a statement.

Electronic goods and photo equipment, jewelry and watches rose the most during the period, it said Sales of electronic items jumped 37.7 percent, while those of jewelry and watches gained 31.8 percent. Sales of footwear and clothing accessories increased 19.5 percent, and those of motor vehicles and auto parts were up 15.7 percent.

Tourist arrivals rose 16.9 percent in August to a 2.8 million, the highest single month on record, according to the Hong Kong Tourism Board. Tourists from China, who comprised over 60 percent of the total, grew 23.5 percent.

"The trend of mainland tourists will continue to boost Hong Kong retail sales, despite the competition posed by Macau," Chan said.

Retail sales account for about a third of private consumption, one of the key drivers of Hong Kong's gross domestic product.

For the whole year, retail sales may grow between 10 to 15 percent , said Frances Cheung, an economist at Standard Chartered Bank in Hong Kong.

"The favorable employment outlook, wage increases and vibrant stock market will result in a double-digit growth for retail sales in the last quarter of this year," Cheung said.

Hong Kong's jobless rate hovered at a nine-year low in June to August, with the number of employed persons reaching a record 3.5 million.

Mainland Chinese are flocking to Hong Kong to shop "because they are assured of the quality of the merchandise here," Cheung said.

Retail sales by volume grew 12.5 percent in August from a year ago, less than the 12.9 percent estimate of economists but higher than July's 12.1 percent increase.

(1 US dollar = 7.80 Hong Kong dollars)

Hong Kong's August Merchandize Exports Rise Slower Than Expected

Sep 27, 2007 - Hong Kong's exports in August rose 7.5 per cent year-on-year boosted by vibrant trade flows from mainland China and rapid economic expansion in emerging markets, the government said on Thursday.

Exports rose to HK$243.2 billion (US$31.2 billion) after rising 8.6 in July, with re-exports, or imported goods reprocessed and exported from Hong Kong, grew 9.5 per cent year-on-year to HK$233.5 billion.

Imports expanded 9.0 per cent to HK$256.8 billion, although domestic exports dropped 25.3 per cent to HK$9.7 billion.

A government spokesman said while the external trading environment remains largely supportive, it is being subjected to increasing uncertainty.

'The direction of the US economy, in the face of its housing market correction and sub-prime mortgage turbulence, will be the key source of uncertainty in the period ahead,' he said.

'Also relevant to Hong Kong's export performance would be the effects of the mainland's cut in export tax rebate and tightening measures on processing trade, as well as exchange rate movements,' he added.

During the month, exports rose 11 per cent year-on-year to mainland China, the biggest market, and by 5.9 per cent to the Netherlands.

However, exports to some of Hong Kong's major destinations fell, with those to the UK falling 8.8 per cent, Japan down 7 per cent and Taiwan dropping 4.9 per cent.

For the first eight months of the year, exports to mainland China rose 14 per cent, the Netherlands were up by 8.8 per cent, France gained 8 per cent and Germany climbed 6.3 per cent.

Hong Kong Consumer Prices Rise In August

Sep 20, 2007 - Hong Kong consumer prices rose 1.6% in August from last year compared to an increase of 1.5% in July, the Census and Statistics Department said Thursday. Economists expected an annual increase of 1.7% for the month of August. The increase was due to higher food prices, which rose to 4.6% in August from the 3.6% growth in July.

During the three months ended August, the consumer price index climbed 1.5% annually. Meanwhile, the index increased 1.7% for the twelve months ended August.

HK Monetary Authority cuts base rate by 0.50 percentage point

Sep 19, 2007 - The Hong Kong Monetary Authority (HKMA) cut its base rate by 0.50 percentage point to 6.25 percent on Wednesday.

The move comes after the US Federal Reserve decided overnight to cut its benchmark interest rate by 0.50 percentage point to 4.75 percent to stimulate an economy imperiled by housing and credit market stress.

Hong Kong's currency peg to the US dollar links its monetary policy to that of the US so the HKMA generally follows in lockstep any interest rate adjustments by the Fed.

Hong Kong end-Aug forex reserves 138.3 bln usd vs 137.1 bln at end-July

Sep 7, 2007 - The Hong Kong Monetary Authority (HKMA) said the territory's official foreign currency reserve assets totaled 138.3 bln usd at the end of August, up from 137.1 bln usd at the end of July.

Including unsettled forward contracts, foreign currency reserve assets at the end of last month also stood at 138.3 bln usd compared with 137.1 bln in the preceding month.

Hong Kong is the world's ninth largest holder of foreign currency reserves based on the latest published figures, after mainland China, Japan, Russia, Taiwan, Korea, India, Brazil and Singapore.

The total foreign currency reserve assets of 138.3 bln usd represent about seven times the currency in circulation or 36 pct of Hong Kong dollar M3.

(1 usd = 7.8 hkd)

Hong Kong July retail sales up 14.2 pct by value on growth, tourism

Sep 3, 2007 - Hong Kong retail sales rose faster than expected, growing 14.2 percent in July from the year earlier to 21.3 billion Hong Kong dollars.

The rise was supported by strong economic growth and an increase in tourists, drawn in by activities linked to the 10th anniversary of the handover of the former British territory to China.

The growth in sales beat June's 14.3 percent increase and the consensus estimate of a 9.9 percent gain from economists polled by Thomson IFR.

"The growth momentum in the volume of retail sales remained vigorous and broad-based," a government spokesman said in a statement Monday. "This reflected the upbeat consumer sentiment on the back of robust economic fundamentals."

Gains in the stock market, rising wages, a falling jobless rate and the arrival of more tourists also helped boost sales of cars and electronic goods, the spokesman said.

The Hong Kong economy expanded 6.3 percent in the first half of this year from same period in 2006 and the government last month raised its full-year growth forecast to 5-6 percent from 4.5-5.5 percent.

Retail sales contribute about a fourth of Hong Kong's gross domestic product, said Dave Cohen, director of Asian economic forecasting at Asian Economics in Singpaore.

Tourist arrivals rose 12.3 percent in July from a year ago, according to the government. Visitors from mainland China, which account for 57 percent of the total, rose 16.2 percent.

"The improving unemployment rate and GDP growth in the first half is convincing consumers to spend in the period," said Paul Tang, chief economist at Bank of East Asia, who forecast a retail sales growth of 10 percent for July.

Hong Kong's jobless rate fell to 4.1 percent in May-July, down from 4.2 percent in April-June, the government said last month.

By volume, retail sales rose 12.1 percent in July from a year ago, above the 7.2 percent forecast in the IFR Thomson survey.

Sales of motor vehicles and parts increased 56 percent, the highest growth among the items monitored by the government. Sales of electronic goods and cameras rose 37.4 percent, while sales of jewellery, watches and other valuable gifts increased 20 percent, the government said.

"Retail sales will continue to boom and the outlook is bright for the Hong Kong economy," Cohen said. "This is supported by the strong tourist traffic coming from China and the expected investment from Chinese citizens in the stock market."

China on August 20 allowed residents to buy Hong Kong shares, though until now the plan has not yet been implemented.

Cohen expects retail sales by value to grow 10 percent this year, faster than 2006's 7.2 percent.

Bank of East Asia's Tang, however, expressed some caution.

"Concerns over a possible slowdown in the US economy could hurt sentiment going forward and possibly appear in the data sometime late this year or early next year," Tang said. "Consumer spending patterns may change around yearend if the US economy turns for the worse."

(1 US dollar = 7.80 Hong Kong dollars)

Hong Kong M1 Money Supply Falls 3.1% On Month In July

Aug 31, 2007 - Hong Kong's money supply as measured by M1 declined in July from June, as some investors in the stock market sold their shares on concerns about the subprime mortgage problem in the US, said Daniel Chan, senior investment strategist at DBS Bank.

"M1 usually reflects the performance of the stock market," Chan said. "If the market is performing well, you will see an increase in M1, which is a measure of short-term liquidity."

M1 refers to total currency in circulation, or those held by the public plus demand deposits.

Hong Kong's M1 money supply dropped by a seasonally adjusted 3.1% in July from the previous month, the Hong Kong Monetary Authority or HKMA said Friday.

Compared to the previous year, M1 money supply increased 12.1% in July.

The official data showed that the unadjusted M2 and M3 in Hong Kong dollar terms both declined by 5.5% on a month-on-month basis.

"If this trend continues, that both M2 and M3 will decline, then we might see a slowdown in the economy," Chan said.

M2 is M1 plus savings and time deposits and negotiable certificates of deposits.

M3, the broadest measure of money supply, includes M2 plus security deposits with authorized banks and negotiable certificates of deposit.

A contraction in M2 and M3 means that companies and individuals are not borrowing to fund investment and consumption, Chan said.

Total deposits with authorized financial institutions slid 2.0% in July.

Hong Kong dollar deposits dropped 5.9%, while foreign currency deposits rose 2.8%, the report said.

On a year-on-year comparison, Hong Kong dollar M2 and M3 grew by 20.2% and 20.1% respectively.

In July, total loans and advances declined 4.8%, triggered by a fall in Hong Kong dollar loans exceeding the increase in foreign currency loans. Domestic loans fell 6.0%, whereas loans outside Hong Kong grew by 2.2%.

Hong Kong July CPI Up 1.5 Pct Yr-on-Yr Vs Up 1.3 Pct in June

Aug 21, 2007 - The composite consumer price index (CPI) in July was up 1.5 pct from a year earlier, compared with a 1.3 pct increase recorded in June, the government said.

A government spokesman said the larger year-on-year increase in consumer price inflation in July, compared with June, was due mainly to bigger hikes in the prices of pork, private housing rentals and the cost of meals bought away from home.

Hong Kong Q2 GDP growth 6.9 pct yr-on-yr; 2007 GDP target revised to 5-6 pct

Aug 17, 2007 - The Hong Kong government raised its 2007 gross domestic product (GDP) forecast Friday after the second-quarter reading beat economist expectations, driven by exports and consumption.

GDP rose 6.9 percent in the quarter from the year earlier, above the Thomson IFR forecast for a rise of 5.7 percent.

Merchandise exports expanded 11.3 percent in the quarter while domestic consumption increased 6.6 percent. Investment spending grew 11.1 percent.

For the first half, GDP expanded 6.3 percent.

The government said it now expects GDP to rise 5-6 percent in 2007, up from its previous estimate of 4.5-5.5 percent. The new estimate takes into account the uncertainties in the external environment, it said.

"Indeed, barring any abrupt adverse changes in the external environment, the economy is set for further solid growth in the second half of the year," the government said in a statement.

The government said it's sticking with its inflation forecast for the year of 1.5 percent.

The unemployment rate for the quarter stands at its lowest level since mid-1998 at 4.2 percent. Job vacancies surged to a post-1997 high in March.

Going forward, the government warned of uncertainty arising from the US economy as it struggles with sub-prime mortgage worries and the resultant tightening of credit conditions in many other markets.

"The external environment will also be affected by the movements of exchange rates as well as the macroeconomic adjustment measures in the Mainland," the statement said.

The government expects the economy to receive a boost from the strong growth in mainland China and other emerging markets, as well as the sustained economic expansion in Japan and Europe.

On inflation, the government said higher food prices, the stronger yuan and recent weakness in the US dollar would continue to exert cost pressure.

However, the sustained increase in productivity is expected to provide an offset.

(1 usd = 7.8 Hong Kong dollars)

Hong Kong GDP Up 5.6% In Q1

May 18, 2006 - Hong Kong's Gross Domestic Product rose 5.6% in real terms in the first quarter of 2007 over a year earlier, compared with the 7.3% growth in the previous quarter, the Census & Statistics Department has announced.

Analysed by sector and on a year-on-year comparison, net output in all service sectors taken together rose 7.6% in real terms, after 9.6% growth a quarter earlier.

Net output in the wholesale, retail, import and export trades, restaurants and hotels sector grew 7.7% in real terms, compared with the 10% rise in the previous quarter.

Growth in local consumer demand, robust external trade and the expansion of offshore trade and inbound tourism all contributed to the rise, the Department said.

Net output in the transport, storage and communications sector rose 5% in real terms after a 9.4% rise in the previous quarter. Robust external trade underpinned the growth in transport and storage services. The net output of the financing, insurance, real estate and business services sectors rose 15.2% in real terms, compared with the 17.4% increase in the fourth quarter of last year.

The growth impetus came mainly from banking services, on the back of a substantial rise in commission and service income. Also relevant was a leap in the net output of stock brokerage companies, underpinned by a significant rise in stock market turnover.

Net output in the community, social and personal services sector rose 1.3% in real terms, following the 3.2% rise in the previous quarter.

A fall in net output was seen in the local manufacturing sector. It recorded a 1.5% fall in real terms in the first quarter, compared with the decrease of 1.4% in the fourth quarter.

In the construction sector, net output fell by 4.6% in real terms, following the decrease of 3.1% in the fourth quarter. The fall was mainly attributable to a lack of large infrastructure projects in progress.

Net output in the electricity, gas and water sector rose 1.1% in real terms, compared with the 4% fall in the fourth quarter of 2006.