Protest-hit Hong Kong unveils $2.4 billion economic support package

HONG KONG (Reuters) - The Hong Kong government unveiled a HK$19.1 billion ($2.4 billion) package on Thursday to support a slowing economy as escalating political protests and the prolonged U.S.-China trade war weigh heavily on the Asian financial centre.

A man walks on a street after the clashes between anti-extradition bill protesters and police officers during a demonstration in Sham Shui Po neighbourhood in Hong Kong, China, August 11, 2019. REUTERS/Issei Kato

Financial Secretary Paul Chan announced the package at a news conference as anti-government protests roiled Hong Kong for the third month. He said the government is expecting to lower its 2019 GDP growth forecast to 0%-1%, from the original 2%-3%.

The measures include subsidies for the underprivileged and business enterprises, as well as somewhat higher salary tax rebates.

The off-cycle support came ahead of the annual policy address in October and the budget, scheduled for early next year. Chan insisted the intervention was not related to political pressure from the protests.

“It is prudent and reasonable to assume that the economic headwinds will continue to be very strong,” he said.

The government will also provide a 90% guarantee for approved loans to small and medium sized businesses, create more construction jobs, and hand HK$2.3 billion of subsidies to 900,000 school students.

Hong Kong will release its latest economic forecasts along with second-quarter data on Friday, though analysts said the April-June readings would not give a full picture of the sharp shock to businesses seen in the last two months.

Ten weeks of increasingly violent confrontations between police and demonstrators have plunged the international business hub into its worst crisis since it reverted from British to Chinese rule in 1997.

Tourists are cancelling hotel bookings and retailers are forecasting a sharp drop in sales, adding to the pressure on local businesses from the year-long trade war and China’s broader economic slowdown.

Hong Kong leader Carrie Lam last week warned the next downturn will hit the city’s economy like a “tsunami”, and said her administration will provide more “daring measures” in supporting growth.

(GRAPHIC - HK retail sales, tourism receipts as of Aug 15 2019:

But Chan’s package is unlikely to ease the downward pressure on Hong Kong’s small and open economy, said Cliff Tan, East Asian head of global markets research at MUFG.

“The world’s going into recession ... Hong Kong will not be able to somehow ride that out without being affected,” he said, adding that China’s economy was also struggling.

Preliminary data showed Hong Kong’s economy expanded 0.6% in April-June from a year earlier, in line with the first quarter’s decade-low pace and much less than economists expected.

But GDP contracted 0.3% on a quarter-on-quarter basis.

Research firm Capital Economics warned the protests could push Hong Kong into a recession, or risk “an even worse outcome if a further escalation triggers capital flight”.

Financial markets have shown signs of stress, with stocks .HSI dipping to their lowest since January this week.

Chinese paramilitary forces conducted exercises across the border from Hong Kong on Thursday, raising fears that Beijing may be preparing to act against mass demonstrations in the Asian financial hub it has described as “near terrorism”.

(GRAPHIC - Chart - Under pressure - HK stock market:

Additional reporting by Twinnie Siu, Clare Jim and Felix Tam; Editing by Kim Coghill and Darren Schuettler