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Being small and externally oriented economies, both Hong Kong and Singapore are vulnerable to the global financial crisis. Our real GDP registered a sharp year-on-year decline of 7.8% in the first quarter of 2009.
Merchandise exports fell markedly by some 23% during the same period, representing the worst performance since 1954. Business receipts also dropped notably across most service industries. We expect our full-year GDP forecast for 2009 will be contracted by 5.5% to 6.5%.
Nevertheless, the economic growth on the Mainland and signs of the global economy stabilising suggest the rate of economic contraction in Hong Kong will probably slow down in the coming quarters.
With our sound fundamentals and flexible market institutions, we believe our economy will be able to recover solidly once the global economic environment improves.
Business aid
In the face of a depressed world market and squeezed credit flows, we, like our Singaporean friends, are striving hard to put our economy back on a positive track.
To assist the business sector to tide over these unprecedented challenges, the Hong Kong Government has quickly put in place more than $100 billion loan guarantees to business enterprises to ease their liquidity problems.
To assist SMEs to develop their overseas markets during these difficult times, we have also increased the grant ceiling for our SME Export Marketing Fund, which aims at helping SMEs expand their businesses through participation in export promotion activities.
The Hong Kong Export Credit Insurance Corporation has also enhanced its underwriting capacity and launched a series of additional support measures for providing better protection for our exporters.
Mainland market
Being at the right place at the right time can spell success for your business. While major traditional markets are shrinking, the rapidly growing market in our hinterland, the Mainland, as well as our increasing economic integration with the Mainland offer tremendous opportunities for businessmen from around the world.
We concluded the Closer Economic Partnership Arrangement, or CEPA in short, with the Mainland back in 2003, with six supplements signed every year since then. This free trade pact provides tariff-free treatment for all Hong Kong products as well as preferential WTO-plus treatments to Hong Kong service suppliers in a total of 42 service areas.
CEPA allows Hong Kong-registered companies, irrespective of their origins, to establish a foothold in the Mainland market early. On the other hand, the Hong Kong business platform has been increasingly used by Mainland private enterprises to "go out" to the international market.
Crisis always comes with opportunities. Looking forward, the global economic downturn has put us at a juncture to re-visit our development strategy for sustainable growth.
Innovation & technology
Just last month, the Task Force on Economic Challenges led by the Chief Executive proposed a number of measures to develop six knowledge-based industries in which Hong Kong enjoys advantages.
These sectors are educational services, medical services, testing and certification, environmental industry, innovation and technology, and cultural and creative industries.
Hong Kong possesses all the prerequisites for developing the innovation and technology industries. Our world-class universities, sound and well-tried legal system, excellent infrastructure, robust intellectual property protection regime, business-friendly environment and entrepreneurial culture are all essential elements for supporting applied R&D work. These strengths are complemented by our proximity to the Pearl River Delta region, the economic powerhouse of the region.
R&D collaboration
With Shenzhen's momentum in technology development and Hong Kong's strengths in sales and marketing, capital formation and brand promotion, there are a lot of opportunities for the two places to co-operate with and complement each other in our economic development.
For example, we have recently developed a collaboration model of "R&D in Hong Kong, Manufacturing in Shenzhen" and the "Shenzhen Hong Kong Innovation Circle" framework. Under this framework, DuPont, a world renowned US enterprise, opened its Global Thin Film Photovoltaic R&D Centre in the Hong Kong Science Park in March this year and is setting up its manufacturing facilities in Shenzhen.
Separately, we are actively exploring the possibility of new financial or tax incentives to encourage the private sector to increase investment in R&D.
Creative drive
Over the years, our cultural and creative industries have become a major driving force of our economy, contributing more than $60 billion, or around 4% of Hong Kong's GDP on an annual basis.
At present, we have close to 32,000 creative industry-related establishments, with more than 172,000 practitioners engaging in advertising, motion picture, television, design, architecture, planning, animation and comics as well as arts and digital entertainment.
To speed up the development of our creative economy, we set up CreateHK on June 1, a dedicated office to drive creative industries development, respond to industries' demands more effectively and better serve the trade through one-stop-shop services.
We have also set aside $300 million for the CreateSmart Initiative to support the development of creative industries in the coming three years.
Other key initiatives include the setting up of the Digital Entertainment Industry Support Centre to support the development of our digital entertainment industry including comics, and the second phase of the Cyberport Digital Entertainment Incubation-cum-Training Programme.
Secretary for Commerce & Economic Development Rita Lau gave this address at a business luncheon organised by the Hong Kong Economic & Trade Office and the Hong Kong-Singapore Business Association.
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