China announces measures to support HK economy

[August 17, 2011]  HONG KONG (AP) -- China's vice premier announced measures to boost Hong Kong's economy in a show of support for the Chinese territory's government as it struggles with public discontent over surging property prices and growing inequality.

Among the steps outlined by Li Keqiang on Wednesday were measures to give Hong Kong companies expanded access to China's markets and efforts to boost the city's status as an international center for trading of China's yuan currency.

Li is expected to be China's next premier and his first official trip to Hong Kong since he became a vice premier in 2008 is being closely watched in a city where discontent has grown over the government's management of the economy.

Hong Kong is a special administrative region of China with its own political system and currency. Supporters of local autonomy fear that Beijing is gradually tightening its grip on the running of the territory.

"The central government will exert its utmost to do everything that contributes to prosperity and stability of Hong Kong," Li said in a speech.

Hong Kong's middle and working classes are feeling squeezed by surging property prices and inflation that rose to 5.6 percent in June. House prices have jumped over the past year, driven by low interest rates and an influx of investors from mainland China, leaving many people unable to buy or rent a place to live. Many are also feeling pinched because of higher prices for food and transport. Economic growth slowed in the second quarter as exports stagnated.

After Li's arrival on Tuesday, he met with Hong Kong's leader, Donald Tsang.

Li told Tsang the Hong Kong government should "work hard to defuse or reduce negative elements," according to China's official Xinhua news agency. The remark was likely a reference to protesters and activists that have dogged Tsang over a range of grievances, sending his popularity rating plunging.

Li's visit is "mostly to boost confidence in Hong Kong and also to reassure the Hong Kong public about Beijing's support for the economy," said Willy Lam, a veteran China watcher and adjunct professor at Chinese University of Hong Kong.

Lam said it is "doubtful how big the benefit would be for Hong Kong" as Li did not spell out many details of the measures.

Britain handed back control of Hong Kong in 1997 to Beijing, which promised to administer it under the principle of "One Country, Two Systems."

However, Lam said there have been growing signs of interference.

Last month, the Beijing official responsible for Hong Kong criticized the city's civil service for having a colonial era mindset.

Meanwhile, the central government's office in Hong Kong is becoming more proactive in supporting its preferred candidates in local elections, Lam said.

"It's obvious that with economic integration becoming more entrenched by the day, we have more difficulties in maintaining this One Country, Two System model," said Lam.

In his speech, Li said China would expand access for Hong Kong companies to the mainland's service sector and help Hong Kong beef up its status as a financial center by encouraging mainland companies to list on the city's stock exchange.

China gives Hong Kong companies preferential access to the mainland economy as a way to boost the territory's economy and build support for rule from Beijing.

Li said China will also continue to promote Hong Kong as a center for trading in yuan, China's currency. China is trying to expand the international use of the yuan, also known as the renminbi.

China will encourage the yuan-denominated bond market in Hong Kong by allowing more financial institutions and companies to issue a larger amount of yuan bonds in Hong Kong, Li said.

It will also launch an exchange-traded fund consisting of Hong Kong stocks, widen access for Hong Kong banks and encourage Hong Kong insurance companies to enter the China market.

China also wants to step up Hong Kong's participation in regional and international economic cooperation bodies such as the World Trade Organization, Li said. Mainland Chinese and Hong Kong companies will be also be encouraged to work together to explore international markets.

[Associated Press; By KELVIN CHAN]

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