Hong Kong policy address seen pivoting from security to economic growth

By James Pomfret

HONG KONG (Reuters) - Hong Kong is expected to announce measures to boost the city's economy in its annual policy address on Wednesday, including slashing liquor tariffs, as it seeks to revive the financial hub which has been struggling to recover since the pandemic.

Hong Kong's small and open economy has felt the ripple effects of a slowdown in the Chinese economy. The city's economy expanded by 3.3% in the second quarter from a year earlier, and is forecast to grow 2.5-3.5% for the year.

Although tourism numbers have rebounded since COVID, with 46 million visitors expected this year, consumption and retail spending remain sluggish, while stock listings have dried up and capital flight remains a challenge.

In February, Hong Kong's financial secretary announced new measures spanning property, tourism and financial services, noting headwinds including a complex geopolitical environment and ballooning budget deficits.

But in a meeting last month between China's top official on Hong Kong affairs, Xia Baolong and Hong Kong leader John Lee, Xia emphasised a need for further "reforms" to spur economic growth, in line with China's national strategy.

He called on the Hong Kong government to "unite and lead all sectors of society" to promote reforms, while urging businessmen to help in this drive.

One commentator in the state-run China Daily said Xia's speech suggested a need for "economic and social reforms".

Lee has said the focus this year would be on economic development and people's livelihoods. His government pushed through new national security laws in March which Lee said had improved stability.

Some countries including the U.S. have criticised Lee for leading a years-long security crackdown that has jailed opposition democrats, shutdown liberal media outlets and curbed freedoms.

Lee will deliver his policy address on Wednesday at 0300 GMT.

Local media also reported possible plans to phase out some of Hong Kong's more squalid sub-divided flats, tiny cubicles which have been criticised as below acceptable living standards. Lee is also expected to push more tourism-related initiatives.

On real estate, a key pillar of the economy, Lee is under pressure to do more to revive a market that has fallen around a fifth from its 2021 peak.

Some market players including Midland Realty's Hong Kong residential CEO Sammy Po have called for further cutting of red tape to help Chinese buyers, including younger ones on talent schemes, to transfer capital and secure mortgages.

Liquor taxes could also be slashed from the current 100% - one of the highest rates globally - to try to turn the city into a spirits trading hub in the way that it became an Asian wine trading hub after wine duties were abolished in 2008.

The move may benefit local bars and restaurants that have struggled since COVID, with many local residents now opting to travel across the northern border to the Chinese city of Shenzhen to dine more cheaply.

Retail sales were down 7.7% for the first eight months of 2024 compared with the same period a year before.

(Additional reporting by Clare Jim; Editing by Lincoln Feast.)