A worker unloads construction materials from a barge in Victoria Harbour. Due to the fragile global economic recovery, the Hong Kong General Chamber of Commerce expects the local economy to grow at a slower rate of 3 to 4 percent next year. Jerome Favre / Bloomberg news

General Chamber of Commerce cites fragile global recovery, waning demand

The local economy is expected to grow at a slower rate of 3 to 4 percent in 2011 due to the fragile global economic recovery, the Hong Kong General Chamber of Commerce (HKGCC) said Wednesday.

The Hong Kong government had raised its full-year economic growth forecast in 2010 to between 5 and 6 percent in August from its previous estimate in May of between 4 and 5 percent.

The Hong Kong economy contracted 2.8 percent in 2009 following the global financial crisis in 2008.

Though domestic demand in the US, Europe and Japan has improved this year, fiscal deficits are still hampering their recovery, said HKGCC Chief Economist David O'Rear, adding that this will have a knock-on effect on the Hong Kong economy.

With the mainland economy and its exporters not entirely insulated from the effects of a slowdown in global demand, its ability to stimulate the Hong Kong economy will be diminished, O'Rear added.

In order for Hong Kong to remain competitive, the HKGCC has set some priorities for the 2010-2011 Policy Address due to be announced by Chief Executive Donald Tsang on October 13.

They include assistance given to small-to-medium sized enterprises, improvement of the city's attractiveness as a business hub, and more efforts to coordinate environmental protection measures.

The HKGCC also remains of the opinion that the profits tax should be lowered to 15 percent.

The current profit tax rate was lowered to 16.5 percent from financial year 2008-2009, down from the 17.5 percent levied until 2008. In 2002-2003, the profit tax rate was set at 16 percent.

"As the global economy recovery is still fragile, reducing profits tax to 15 percent will send a clear signal to the international business community that we are determined to stay competitive in the face of intense regional competition," HKGCC Chairman Anthony Wu said.

Regarding the hot issue of skyrocketing local property prices, Wu emphasized that a stable, open and transparent land supply policy by the government is the fundamental recipe for cooling down the local property market.

"We do not rule out the re-launch of the Home Ownership Scheme, or requiring developers to provide more medium-sized flats to suit market demands, but the prerequisite is that there must be regular and stable land supply in future," Wu said.

He added that the government should consider introducing regular land auctions in conjunction with the current Land Application List System to increase land supply in the city.

Under the current system, available land parcels can be triggered for sale when developers are willing to pay the minimum guaranteed amount that meets the government's requirements.

China Daily

(HK Edition 09/16/2010 page2)