17 March, 2020
Hong Kong's government has pledged "counter-cyclical measures of a massive scale" in a bold budget aimed at tackling the economic impact of social unrest and the coronavirus outbreak.
However, bolder measures still are needed to support the construction industry in the face of significant disruption, and to reap the wider economic benefits of increased activity.
Hong Kong's economy entered recession towards the end of 2019 against the headwinds of the US-China trade conflict and the disruption of months of social unrest. The impact on labour and supply chains of the early 2020 outbreak of coronavirus, officially Covid-19, has made a bad situation worse.
Against this backdrop, financial secretary Paul Chan published his 2020-21 budgeton 26 February. The budget, which contains plans for over HK$120 billion (US$15.4bn) of public expenditure, has many bold steps including:
- a HK$10,000 payment to every adult permanent resident;
- 100% reduction in taxes on salaries and profits up to HK$20,000;
- low interest loans for businesses with favourable repayment terms;
- relief on property rates for domestic and business premises;
- reductions in utilities costs for businesses and rents of government properties.
The budget contains many references to continuing and expanding Hong Kong's development of infrastructure, buildings and housing, which will be of particular interest to the construction industry. There is also an allocation of HK$200 million for training allowances and for subsidising SME contractors and subcontractors, up to a cap of HK$20,000 each. This follows previously-announced funding of HK$50,000 for every contractor and HK$1,500 for every registered worker for the costs of hygiene control.
If contractors are not fairly compensated for the financial pain inflicted by the coronavirus outbreak on individual projects then money will not flow down the supply chain.
Peter Clayton, Partner
Most in Hong Kong will agree that now is the time for government action to support and stimulate the economy. But while these measures should provide some much-needed relief to smaller construction businesses and individuals working in the industry, they do not address two significant areas of concern.
Firstly, the coronavirus outbreak has had a profound impact on availability of labour and materials. It has caused significant delays and large costs for contractors where sites and staff teams became idle or are working inefficiently, and where supply costs have risen dramatically. Secondly, although Hong Kong continues to have a bold vision and commitment to continuing to develop its infrastructure and built environment, there are problems within the government getting budgets approved for each new project in a timely manner. This problem has not been helped by months of protest, and now Covid-19.
The first priority of governments will always be to help individuals and smaller businesses first. But construction is an industry where cash and work flows down supply chains from larger companies. It is also generally regarded as one of the best forms of public investment for generating an economic 'ripple effect'.
If contractors are not fairly compensated for the financial pain inflicted by the coronavirus outbreak on individual projects then money will not flow down the supply chain. The same is true if projects which are planned and ready for tender are stuck awaiting budget approvals, and worse still the growth and capacity of the industry is reduced.
Addressing these issues requires a change of approach, as well as money. It would require making the bold decision that the additional costs to a project associated with the coronavirus outbreak should be paid to contractors regardless of the strict contractual position. It would also require a new, streamlined process for budget approvals to ensure the pipeline, capacity and skills of the industry are maintained.
The budget also highlights commitments to the continued development of the Guandong-Hong Kong-Macao Greater Bay Area, the 'Belt and Road' initiative and the development of Hong Kong as a 'smart city', alongside traditional construction and infrastructure. The construction industry has a crucial role to play in all of these projects, as well as significant opportunities. Ensuring it can rise to the challenges ahead in the medium to longer term is vital.
This article was published in Out-law here.
For further information, please contact:
Peter Clayton, Partner, Pinsent Masons
peter.clayton@pinsentmasons.com
