Speech at Panel on Financial Affairs

Briefing by the Financial Secretary on Hong Kong’s latest overall economic situation

COVID-19 vaccination

Mr CHAN Chun-ying pointed out that Hong Kong’s COVID-19 vaccination rate remained low. Given that the pace of economic recovery would hinge on the development of the pandemic, he enquired about the impact of vaccination rate on real GDP growth and whether the growth forecast for 2021 would increase if the vaccination rate continued to improve.

The Chairman said that the business sector was supportive of the Government’s anti-pandemic efforts, including the COVID-19 Vaccination Programme, to promote a full-fledged economic recovery. For instance, the Hong Kong General Chamber of Commerce would consider providing incentives to encourage people to get vaccinated.

FS advised that the Government had put in place various anti-epidemic measures, including stringent prevention and control measures to avert the importation of cases, large-scale testing in the community to help identify asymptomatic patients and compulsory quarantine measures to cut the transmission chain of the virus. While the epidemic situation appeared to have come under control in recent months, FS urged the community to continue participating actively in the COVID-19 Vaccination Programme so that Hong Kong could achieve herd immunity which would present favorable conditions for restoring normal life and travel of citizens, resuming cross-border travel, business and trade with the Mainland and the rest of the world, and enabling the revival of economic activities to the greatest extent.

As regards real GDP growth, FS said that the forecast for 2021 was maintained at 3.5% to 5.5% as announced in the 2021-2022 Budget. If the local epidemic situation continued to improve and the vaccination rate could reach 70%, cross-border travel with the Mainland and the rest of the world could resume, in which case the actual outturn in real GDP growth could reach the upper end of the range forecast or even exceed the forecast. As such, the public should get vaccinated without further delay.

The residential property market

Mr CHAN Chun-ying expressed concern about the index of home purchase affordability which had reached a record high of 73% in the first quarter of 2021. However, according to Hong Kong Monetary Authority’s (“HKMA”) Half-Yearly Monetary and Financial Stability Report, the debt-servicing ratio for new mortgages stayed low at around 37% in January 2021. He sought the Administration’s view on the recent development of the local residential property market, and enquired if the Administration would introduce further measures to curb the surge in residential property prices besides raising flat supply through increasing land supply.

FS advised that the residential property market had turned active since January 2021, with monthly transaction volumes of first- and second-hand residential properties reaching over 7 000 in April and May 2021. Flat prices on average reverted to an increase of 3% during the first four months of 2021 and prices in April 2021 were on average only 2% lower than the historic high in May 2019. He pointed out that flat prices were affected by a host of factors, such as the economic situation, employment situation and flat supply. On flat supply, the annual average completion of private residential flats were projected at over 18 000 units in 2021-2025, representing some 5% increase over the annual average of the past five years. FS added that with the implementation of various demand-side management and macro-prudential measures, the average loan-to-value ratio of new mortgages was maintained at a healthy level.

Central Bank Digital Currencies and e-CNY

Noting that HKMA had been conducting research on Central Bank Digital Currencies (“CBDCs”) jointly with the Bank of Thailand, the Central Bank of the United Arab Emirates and the People’s Bank of China (“PBoC”) (“the CBDC Project”) in recent years, Mr CHAN Chun-ying enquired about the progress and results of the CBDC Project, the implementation timetable of CBDCs, and whether HKMA’s study on the technical aspects of retail CBDCs would cover e-CNY.

Executive Director (Financial Infrastructure), Hong Kong Monetary Authority (“ED(FI)/HKMA”) said that HKMA commenced studies with the Bank of Thailand on the application of CBDCs to cross-border payments in 2019, and the Central Bank of the United Arab Emirates and the Digital Currency Institute of PBoC joined the CBDC Project in 2021. HKMA would release the results of the CBDC Project in due course. Regarding studies on retail CBDCs, ED(FI)/HKMA said that while HKMA would begin studying the technical aspects of retail CBDCs, it had to be mindful of the fact that many electronic payment systems had already been established in Hong Kong. Nevertheless, HKMA would adopt an open attitude in exploring retail CBDC, including on collaboration with other central banks.

Development of financial technologies in Hong Kong

Noting that there had been over 80 applications for the Fintech Proof-of-Concept Subsidy Scheme (“the PoC Subsidy Scheme”) as at end-April 2021, Mr CHAN Chun-ying was concerned whether the Scheme would have sufficient funds, and whether the Administration would consider providing additional funds for the Scheme.

Deputy Secretary for Financial Services and the Treasury (Financial Services) Special Duties (“DS(FS)SD”) responded that vetting of applications for the PoC Subsidy Scheme was underway. As only one application would be approved among the applications proposing similar Fintech solutions, it was envisaged that only two-third of the some 80 applications received would be approved finally. Thus there was still room for the PoC Subsidy Scheme to receive further applications, and the Financial Services and the Treausry Bureau would continue to collaborate with Cyberport to encourage interested parties to submit application. (Post-meeting note : On 16 June 2021, the Cyberport announced that 54 applications received under Phase 1 of the PoC Subsidy Scheme were approved, involving a total grant of around HK$6.1 million.)

In response to the Chairman’s suggestion for the Administration to improve the user interface of the iAM Smart digital service platform, SFST said that the Administration would continue to refine the platform with a view to enhancing the user experience of iAM Smart.