Hong Kong's the Canary in the Coronavirus Economy

Nisha Gopalan

(Bloomberg Opinion) -- Hong Kong led the world in adopting helicopter money. Now the city’s long-term wage subsidies have again put it at the forefront of global efforts to blunt the impact of the coronavirus. Other economies should pay attention.

The government said this week that it will fund 50% of affected workers’ salaries for six months, capped at the equivalent of $1,160 a month. With the exception of Australia, most countries have offered shorter-term relief. Hong Kong’s spending package reflects recognition that the economy will need support for longer than initially thought.

In February, Hong Kong announced a one-time payment equal to $1,290 to every adult permanent resident. That now looks hopelessly insufficient. The cash drop (not technically helicopter money since it isn't financed by central-bank money printing) was always problematic, as my colleague Andy Mukherjee noted. Besides being too small, it will also arrive too late — perhaps not until the third quarter or later. And there’s nothing to stop people from saving it, which would defeat the object of trying to stimulate the economy.

Hence the new bazooka wheeled out by the government Wednesday. This one is targeted at employers, with the wage subsidies aimed at dissuading them from mass layoffs that would cause the economy to tank even further. The government seems to be more efficient at doling out cash to companies than to individuals: The subsidies will be distributed in two batches, with the first starting in June.

Hong Kong’s relief package isn’t the biggest around by any means. Its total fiscal stimulus amounts to around 10% of GDP, compared with 12% for Singapore’s plan and 20% for Japan. On its own, the $10.3 billion job security package amounts to 2.8% of the city’s GDP, according to Bloomberg China economist Ashley Qian.

The duration is what makes it stand out. Singapore is doling out 75% of salaries capped at the equivalent of $3,231 for the month of April. The U.K. is covering 80% of wages for three months with a ceiling of $3,107, starting at the end of April. The U.S., meanwhile, is giving out enhanced unemployment benefits and a one-time check of $1,200 as part of its $2 trillion stimulus bill. It isn’t aiming directly to keep people in work. Australia is one exception: The government there will pay wage subsidies of about $948 every two weeks per employee for six months.

The contrast is instructive. As a low-tax financial center and trade entrepot, Hong Kong has a history of minimal state intervention in the economy. The city has prided itself on topping the Heritage Foundation’s list of the world’s freest economies (though it has now been displaced by Singapore). Wealth disparities are extreme.

Granted, there may be political factors at play. The Hong Kong government and its leader, Chief Executive Carrie Lam, are deeply unpopular, and there are legislative elections slated for September.

Even so, the type of wholesale, sustained government action that Hong Kong is now undertaking runs counter to its laissez-faire DNA. If the city’s venture into direct cash distributions to individuals in February was a canary in the coal mine for the global economy, this may be another. Expect the recovery from the coronavirus pandemic to be slow and painful — and to require government support for much longer than many countries are currently anticipating.

 

 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

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