Caroline Zheng
Hong Kong must be wary of resurrecting a special guaranteed loan scheme for small businesses introduced during the Covid pandemic as it could encourage excessive risk-taking among these enterprises, says Financial Secretary Paul Chan Mo-Po.
Turning the 100 percent Loan Guarantee Scheme – initially rolled out to support small and medium enterprises during the pandemic – into a long-term policy could entail moral hazards, he said yesterday.
In simple terms a moral hazard arises when businesses lower their guard against risks as they are protected from the consequences.
Launched in April 2020, the scheme offered low-interest loans to SMEs struggling with cash flows, with the government providing a 100-percent guarantee. The program ceased accepting applications at the end of March this year.
Speaking after a policy address forum, Chan said that the scheme, designed as an extraordinary response to the pandemic, has seen over HK$13 billion in bad debts. If the scheme were to be implemented as a long-term measure, authorities would need to carefully consider potential risks, particularly moral hazards, Chan noted.
However, he stressed that the 80 percent and 90 percent loan guarantee schemes will continue until March 2026.
Chan added that the government would support SMEs in various ways, not only in terms of financial liquidity but also by promoting their businesses and assisting SMEs in upgrading and restructuring including digital transformation.
On Saturday, Secretary for Commerce and Economic Development Algernon Yau Ying-wah also said that the government has no plan to reintroduce the 100 percent loan guarantee scheme, citing its substantial burden on public finances.
This came after some SMEs recently called for the government to revive the scheme as the city’s economy remained under pressure amid high interest rates.
Separately, Chan said in his official blog yesterday that Hong Kong’s exports are expected to continue growing after posting a rise for three consecutive quarters. The government is set to release July data this week.
Hong Kong’s exports jumped 12.2 percent in the first half of the year, the best first-half performance since 2022, Chan said.
Chan suggested that if export momentum continues, combined with an anticipated cut in US interest rates and improved investment sentiment, the city’s economic stability could be maintained for the rest of the year. He added that retail sales in the city might also get a boost if the US starts cutting rates, leading to a softer Hong Kong dollar, which is pegged to the US currency.
However, Chan cautioned that the timing and scale of US interest rate cuts, as well as their effects, would need to be carefully assessed.
