Hong Kong's tightfisted government is finally opening its wallet. A growth-killing combination of massive protests, the trade war and the coronavirus has the city doling out 10,000 Hong Kong dollars ($1,280) to all permanent residents 18 years old and above in the hope of restarting growth in a tumbling economy.
This is a step in the right direction as a recession that began in mid-2019 deepens. But it is almost certain to backfire as economic reality bears down on Hong Kong.
This is not because of the fiscal implications. In fact, Chief Executive Carrie Lam should consider adding a zero to the HK$10,000 per person she is passing out. Hong Kong's largesse, after all, pales in comparison to Singapore's cash handout and tax offsets.
The real concern is that history shows one-time giveaways seldom have lasting effects on gross domestic product. More broadly, Lam's overall $15 billion emergency spending plan does more for employers than workers.
Economic sticking plasters have their place. Yet Hong Kong's troubles are in part the side effects of policies that favor uber-wealthy tycoons over the masses. The city has long worn its laissez-faire sensibilities on its sleeve. Its low tax rates, duty-free ports, ease of doing business and unfettered capital flows mean Hong Kong is in the business of doing business.
This model is leaving the vast majority of Hong Kong's 7.5 million people behind. At first, proximity to China was a winning lottery ticket. Over time, though, employers could not resist moving high-wage Hong Kong jobs to the mainland. China's moneyed class, meantime, gorged on Hong Kong real estate.
Squeezed from both sides, Hong Kongers understandably looked to their leaders for relief, but government after government came up short. As protests swelled in 2019, local media connected the dots and found surging inequality. The city's Gini coefficient, a barometer of inequality, is at a 45-year high.
Lam's 2019 response? Modest sweeteners for families below the poverty line to pay for health care and education but nothing to help with monthly rents edging ever higher. Nothing to bring enough public housing online. Nothing to increase wages or job creation. Nothing to cap rents or even hike corporate taxes.
One way Lam's 2020 handout could go wrong is if landlords pull out their calculators. They will know that a household of two is getting nearly $2,600 from the government and temporary cuts to individual taxes. Fewer landowners are now likely to cut rents as the recession drags on.
The real perks appear to be going to businesses getting tax rebates, utility-bill subsidies and low-interest loans. Small- and medium-sized enterprises are indeed first to suffer from the headwinds afflicting Hong Kong. But their bigger need is generating demand for their wares and services from consumers; a one-time payout is just as likely to be saved as spent.
Lam might have more success signaling payments to come if households deploy this one. A voucher system, for example, might allow the government to ensure the funds are used before additional public payouts. Hong Kong is also erring in excluding new immigrants from its handout program, but including Hong Kongers working abroad.
Hong Kong needs to face reality. Even before the coronavirus hit, the economy was shrinking. Growth fell 1.2% in 2019, the first annual contraction in a decade, thanks to giant anti-government protests and slowing demand from trade-war ravaged China. Hopes tourism from the mainland might rebound in 2020 are dwindling by the day.
Financial Secretary Paul Chan has already flagged budget deficits for the next five years. For fiscal 2020-21, Chan is telegraphing a 4.8% budget deficit. This, however, is a bit below the gap Hong Kong ran in 2003-04 during the SARS crisis. Why are Lam and Chan being so cautious?
The events of 17 years ago did not coincide with a U.S.-China trade clash. Nor was Hong Kong on socioeconomic tenterhooks as it is today. Moreover, successive governments since then have failed to stop the rich-poor divide from polarizing the population.
There is another way this scheme could backfire: if the government believes its job is now done. Lam's newest budget may indeed buy her embattled government a dose of good will, but delivering a one-time cash dividend in no way alters an economic system leaving millions behind.
Lam's team is missing the bigger plot: what a continually dissatisfied population means for Hong Kong's prospects. While Fitch Ratings is not worried about the effect of the handouts on Hong Kong's credit rating, it does fear "the possibility that lingering social instability amidst ongoing economic strains will further damage the attractiveness of the territory's business environment and perceptions of the effectiveness of its governance."
Hong Kong is too paranoid about the first point and not nearly concerned enough about the second. With coronavirus threats mounting, now is not the time for fiscal caution or same-old-same-old remedies. Heaven knows Hong Kong can afford it.
William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."