Hong Kong was ahead of the world when in February it announced a handout of almost $1,300 to residents suffering from a recession worsened by the coronavirus. By the time the money arrives, it may be too late to undo the damage.
While the US plans to send checks to individuals as soon as this month as part of a $2tn relief package and other countries roll out payouts, Hong Kong’s cash drop isn’t expected until the third quarter or even later.
Virus control measures are shuttering more businesses and accelerating job losses in the Asian financial hub, with the latest regulations involving a two-week closure of bars intended to curb a second wave of the outbreak locally. This comes after the economy slid into recession last year, battered by months of anti-government protests.
While once there was talk of how the payment could support discretionary spending at Hong Kong’s restaurants and shops, now it’s looking more like a form of basic income support.
There had been “a lot of excitement around the Hong Kong cash handout,” said Rory Green, an economist at TS Lombard. “We view it as more of a tax break, and one that will come too late to support the economy through virus-related disruption.”
For Jason Lam, a 32-year-old chef in Tsim Sha Tsui who has been asked to take repeated unpaid leave over the past two months, the cash can’t come soon enough.
“That HK$10,000 will be very helpful because I don’t have enough income to cover my spending,” he said. Lam signed up for a savings plan last year and is now struggling to make the monthly payments. “This has bothered me to death. I don’t know what will happen in April now with the new social-distancing rules further dragging down our business.”
The escalating global pandemic is the latest blow to Hong Kong’s economy. It is forecast to struggle in a range of -1.5% to +0.5% growth this year, Financial Secretary Paul Chan forecast in the budget released in late February.
On paper, Hong Kong has the right mix of circumstances to make such a cash drop work, which is a reason why the city was one of the first in the world to announce a general payout in the current crisis.
The government has plenty of cash on hand given a fiscal reserve of more than HK$1 trillion, and experience with past handouts.
But amid a broader economic support plan worth HK$120bn, the Hong Kong government says the direct payment needs technical and legal work, and that is moving more slowly than the epidemic.
“It takes time to carry out the required preparatory work,” the Financial Services and the Treasury Bureau said in a March 24 e-mail. “Our current target is to strive to commence registration in early July and start making payment during summer vacation.”
There are plenty of boxes that still need to be checked off, including spending approval from the Legislative Council for the wider budget, which is not expected before the end of April. While officials are waiting, they have begun developing computer systems to handle the programme, discussions with partners such as banks on details and formulating a publicity plan, the department said.
An April 3 brief from the Legislative Council Secretariat, which provides support to council members and the public, raised several concerns about the handout including the amount of time it will take compared with other programs in Macau and Singapore based on past experience, high administrative costs and the non-targeted nature of eligibility.
“It is not clear whether the cash can reach the needy soon enough to soothe their plight,” the report said.
Aside from the US programme to send out checks, other countries are planning or have discussed direct cash payments to citizens, though many are running into complications of their own.
Thailand opened registration at the end of March for a handout programme to cover about 9mn people. However a third of Thailand’s population, or some 22.9mn people, have already signed up, meaning many will be disappointed.
Japan’s ruling party has proposed spending more than 10tn yen ($92.1bn) on handouts to the public in a combination of cash, subsidies and coupons. A decision on the handout format is complicated by concern over repeating the perceived failure of direct payments made during the global financial crisis.
Italy is preparing an emergency handout for workers in the country’s underground economy, while Peru has begun distributing cash to the country’s 2.7mn poorest families.
Singapore also is moving slightly faster than Hong Kong, having announced a one-time payment in March that’s due to land in August.
Hong Kong distributed checks of HK$6,000 to the populace in 2011, though that occurred when the economy was booming and the need for the money less urgent.
The plan was announced in March, with registration beginning at the end of August and payments by early November, according to the government. The plan ultimately took about 21 months to make payments to 6mn people, the LegCo brief said.
Now, “the cash handout is more a social insurance in the crisis rather than fiscal stimulus,” said Aries Wong, lecturer at Hong Kong Baptist University’s School of Business. “Its effect depends on the portion of cash that would be re-spent by households.”
In an interview with Bloomberg TV in early March, Financial Secretary Chan said he hoped residents would support Hong Kong by spending, and encouraged businesses to come up with incentives for them to do so.
Vivian Leung, a 33-year-old teacher in Hong Kong, said her family and friends are thinking about using the money to buy goods such as face masks, sanitizer and cleaning equipment to fight the coronavirus.
“All those things, for the past two to three months, pretty much makes up HK$10,000,” she said. “Are we excited? It’s better than nothing.”
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