Economist Sees Few Short Term Benefits In Beijing Incentive Package

by Mary Swire, Tax-News.com, Hong Kong

26 October 2001

Despite lively interest by corporates in Beijing, reported elsewhere in tax-news.com today, one of the territory's leading economists announced that he sees few short term benefits for the SAR in the recent investment incentive package offered by Beijing.

Earlier this week, the city announced details of a six point incentive package designed to facilitate joint ventures between the mainland and Hong Kong. Proposed measures included the lifting of foreign investment resrictions, a range of tax and fee exemptions previously denied to SAR-mainland joint ventures, and a head start for investors from the region in designated foreign investment projects.

However, Pu Yonghao, Senior Economist with Nomura International suggests that far from benefitting the Hong Kong economy in the short term, it may actually encourage businesses and investors to migrate away from the SAR to the mainland: 'Strengthening the economic relationship with Beijing, obviously, will help Hong Kong in the long run,' he admitted. 'But I do not see any concrete help to Hong Kong's economy for the time being. For those Hong Kong people to benefit from it, they would have to migrate to Beijing or take jobs there.'

However, Mr Pu ruled out the possibility of an immediate mass exodus, saying that it was more likely that businesses from the region would establish subsidiaries and branches on the mainland over time.

Meanwhile, speaking at a CEO forum organised by Business Week magazine, Chief Secretary Donald Tsang also painted a gloomy picture of the economic future for the region: 'We are facing a rough time, a pretty tough time,' he observed on Wednesday. 'Perhaps the worst since the Korean War.'

However, despite the potential severity of the economic downturn, Mr Tsang refused to be overly pessimistic, and although he declined to comment on when the territory's economy was likely to recover, he said that when the tides turned, Hong Kong would be in a good position to benefit. 'As soon as you see the US economy on a climb, you'll find Hong Kong close behind,' he predicted.

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