* Housing problem “a priority”, land supply increased
* HK$10 bln in subsidies to curb road-side pollution
* High real estate prices hurting city’s competitiveness (Recasts)
By James Pomfret and Grace Li
HONG KONG, Jan 16 (Reuters) - Embattled Hong Kong leader Leung Chun-ying unveiled measures to increase land supply to bring down property prices and called for closer economic integration with China on Wednesday in a maiden policy speech likely to win him as many foes as friends.
Leung, who took office in July on a platform of making housing more affordable, unveiled policies aimed at reviving his reputation after several scandals, mass protests and a failed impeachment in his first six months in office.
Hundreds of protesters surrounded the legislature as Leung spoke, some demanding he resign.
“His major liability is that a substantial segment of the pro-democracy camp and a considerable segment of the population simply do not trust him and want him go,” said political scientist Joseph Cheng.
Whatever Leung had to offer, it was bound to be divisive - his pledge to rein in property prices has pitted him against powerful property tycoons such as Li Ka-shing, who stood by the Hong Kong leader’s main rival and early front-runner Henry Tang in the leadership poll in March.
His call for closer integration with Communist Party-ruled mainland China comes at a time when many Hong Kong people are increasingly seeking to stake out a distinct identity for the city and taking to the streets to demand it.
And the Beijing-backed Leung offered nothing for opposition forces pushing for universal suffrage, something China has promised by 2017.
”As neighbours, Hong Kong and Guangdong province are mutually dependent and complementary to each other,“ Leung said of the bordering mainland Chinese province. ”As such, there is far-reaching strategic significance in enhancing and deepening our co-operation.
“The government will seek to foster comprehensive co-operation between Hong Kong and Guangdong in the areas of finance, modern service industries, trade, convention and exhibition, tourism, environmental protection and the building of a quality living area and social administration.”
The former British colony returned to Chinese rule in 1997 with the guarantee of “one country, two systems”, meaning it would keep its legal system and freedoms of expression not enjoyed on the mainland.
Hong Kong’s soaring property prices, among the world’s highest, have seen the spread of cage homes, wire mesh hutches stacked on top of each other and cubicle apartments as the city’s residents are forced out of the market.
“Land shortage has seriously stifled our social and economic development and smothered many opportunities for people to start and expand their businesses,” Leung said, noting that some 200,000 people were now on waiting lists for public housing.
“As long as the housing shortage persists, we have no alternative but to restrict external demand and curb speculative activities,” he added in a two-hour speech.
Leung said more land would be re-zoned for housing and new areas opened up for development, with 67,000 private units expected to come on to the market in the next three to four years. A target of some 100,000 subsidised public housing units would be built in the five years from 2018, in addition to the 75,000 already planned in the coming five years.
“Many question the government’s ability to raise land supply over the near term and think that the crux of the housing-shortage problem cannot be solved until 2018,” Daiwa analyst Kevin Lai said.
Leung has endured a difficult half year, wrestling with issues ranging from the high property prices and perceived interference from China over education, to grassroots resentment caused by a tide of Chinese visitors and pregnant mainland women cramming maternity wards to gain local citizenship.
He narrowly survived a motion of no-confidence in December over unauthorised building works in his home that have undermined his integrity and triggered calls for his resignation.
Leung also focused on other livelihood issues such as welfare, with the city now having one of Asia’s biggest wealth gaps, as well as worsening pollution.
Hong Kong’s ageing population is expected to increase from 940,000 to around 2.5 million within 30 years, posing a potentially huge fiscal burden.
More than 1.1 million people, or 17 percent of Hong Kong’s population, lived below the poverty line in 2011, earning less than HK$3,500 ($450) per month, or half the average monthly income, according to the Hong Kong Council of Social Services.
Leung proposed HK$10 billion ($1.3 billion) in subsidies to phase out over 80,000 heavy-polluting diesel vehicles, while fresh emission reduction targets have been set with neighbouring Guangdong province - a major source of cross-border pollutants from tens of thousands of factories in the Pearl River Delta.
“The deep-seated problems of Hong Kong cannot be solved overnight. But we need to grasp the nettle and take the first step to deal with them,” Leung said. ($1 = HK$7.75) (Additional reporting by Venus Wu, Twinnie Siu, Christina Lo and Tan Ee Lyn; Editing by Anne Marie Roantree and Nick Macfie)