Breaking out of the crisis in Hong Kong

Two words being spoken right now in economic circles, especially in the midst of this crisis, are "exit strategy."

Most specifically asked is when countries should start adopting exit strategy policies.

It`s a tough question and one where Hong Kong`s professor-turned-Secretary for Financial Services and the Treasury, Chan Ka-Keung echoes the popular conception.

"Countries should be careful because the downside risk is still there, mainly because of the slow consumption growth in the United States and it should be done in a coordinated manner," he told The Korea Herald.

He explained that the first stage of an exit strategy would be to find ways on how to get government out of the interbank market so that the banks can function without any financial assistance from the government.

"The exit strategy should be done in phases considering the necessities of the financial market," he said.

Chan explained that Hong Kong is in a different situation than many western countries because their banks did not need any financial help from the government.



Hong Kong stimulus measures where limited to three areas, one in support by putting measures to ensure that their banks had access to liquidity.

One area where the government provided support was to make sure that small and medium size enterprises were able to get financing.

"The lack of financing was due to the uncertainty by the banks so some banks decided to be more careful about lending money," he said.

To assist banks and SMEs, the Hong Kong government introduced a loan guarantee scheme that covered up to 80 percent of the loan taken by SMEs.

"We believe the banks in Hong Kong had a very prudent lending policy so we wanted to give banks more encouragement."

While Chan is optimistic about the outlook of the economy he does take a cautious approach by making sure the program continues for another six months after its original expiry date at the end of this year.

"We already lent 15.4 billion Hong Kong dollars which benefited more than 20,000 firms and saved countless jobs," Chan said.

Another program the Hong Kong government implemented was the acceleration of its public expenditure policy like infrastructure programs.

"Our unemployment rate went up to 5.4 percent at one point and in recent months it went down to 5.3 percent," he said. "It seems to be stabilizing."

One of the big booms in Hong Kong now is in their property market.

"When you have liquid money you have to put your money somewhere so the property market and the stock market is a good place to invest in," he said.

Even though the property market in Hong Kong is doing well, Chan does offer caution.

As for their stock market, Chan attributes the rise to China`s success story.

"Hong Kong is a good proxy for Chinese economic growth," he said.

While western countries are pulling themselves out of this economic funk, markets in China, Hong Kong and Korea have been doing relatively well, that`s why Chan believes those three markets should support each other.

"Financial cooperation is good for everyone," he said. "If you want to raise money from international investors, Hong Kong is a good place for that because of the concentration of all the financial services firms, which in turn have access to all the fund managers and so on."

Furthermore, Hong Kong is a bridge that brings the world closer to China and Asia.

"Information flow, access to clients who are interested in buying securities from China is very much there in Hong Kong," Chan said. "Also, it`s a good place in terms of transportation, language, and the international network in Hong Kong is definitely advantageous."

Hong Kong is already one of the leaders in the world in finance, shopping and manufacturing, but Chan believes that those three pillars of their economy can be strengthened particularly in the manufacturing sector.

Many Hong Kong firms have a good deal of their factories located in China. From there, those goods are then exported to the world.

Chan said there is a huge potential in transforming those export oriented factories in China into factories that produce goods for the internal Chinese market.

"Hong Kong will have very good access to that market through our knowledge, experience as well as policy support."

The government has also identified a number of directions for Hong Kong to branch out in based on their existing strengths in the cultural sphere.

"There is more we can do in the film industry, music, media and fashion," he said.

Education and the medical sector are other sectors Chan discussed.

"Hong Kong has good universities and we are seeing a lot of demand from China and increasingly from Korea," he said. "So it`s possible that Hong Kong can do more in education."

"We have a very good medical sector," he said. "By supporting that sector we can attract patients to use our hospital services."

Before assuming the post of Secretary for Financial Services and the Treasury, Chan was Dean of Business and Management of the Hong Kong University of Science and Technology.

During his tenure there he said that he encouraged his students to study abroad and "Korea is a popular option."

"Hong Kong has a particular edge, we understand Hong Kong, understand China and it`s the place where one gets a western education."

This time around, Chan is pushing for international students to study in Hong Kong because of their strong faculty members, its research, geographical advantage and international connections.

"I always believed in cross cultural experiences so Hong Kong is a good place for that."

(yoav@heraldm.com)



By Yoav Cerralbo