More opening up by China, such as by the lifting of restrictions on trade and tourism, have helped Hong Kong’s economy to recover.  But the SAR can do more to enhance its competitiveness – by pursuing, not established schools of thinking, but market economic objectives and principles.

One area of economic activity hitherto unexploited in Hong Kong comprises “externalities” and long-term perspective.  Externalities are where the rate of return on a project might not be attractive to the private investor concerned, but which, upon taking into account benefits to the rest of the economy, would warrant the offering of public subsidy to private investors as incentive.  Likewise, government may be the only investor so large and long-term in its “business” as to be able to invest in or lend to projects that yield attractive rates of return only over the long term.

Specific steps might include stepped-up infrastructure construction: HK$10bn, say, per year of direct incentives to enterprises that constitute new engines of economic growth, and participating in long-term investments in and loans to enterprises.

The government would not pick winners to invest in.  Instead, private enterprises will have to meet criteria for new engines of growth, and to rely on their own judgment when investing substantial amounts of their own money, in order to qualify for the incentives.  The government would also work in partnership with venture capital companies and banks, relying upon their expertise and judgment.

On another front, to boost Hong Kong’s attractiveness to businesses, taxes would be cut across the board by, say, 2%.  Given that tax rates in the region have fallen in recent years, this would widen Hong Kong’s lead once again.  It would benefit all businesses, both existing ones and new investments.

The above measures, as investments in competitiveness, would be made possible by savings from extending the allowances system to housing .   

For further details, click here for the paper “Government’s role in enhancing economic competitiveness”. 

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