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As Hong Kong’s leaders hunt for a political solution to the months-long impasse with protesters, officials are trying to prop up the deteriorating economy with fiscal spending.

The problem, economists say, is they’re doing it on the cheap and packaging the fiscal measures in ways that won’t meaningfully help the city’s economy now, or in the long run.

The fiscal stimulus announced by Financial Secretary Paul Chan since the start of protests in June -- HK$19 billion ($2.4 billion) in August followed by about HK$2 billion in October -- amounts to less than 1% of Hong Kong’s economy, according to Alicia Garcia Herrero, chief economist for Asia Pacific region with Natixis SA.

“The so-called economic stimulus is literally peanuts for an economy entering a big recession,” she said. Hong Kong’s annual output stood at about $363 billion at the end of 2018, according to World Bank figures. The city had about $150 billion in fiscal reserves at the end of March.

“They should have embarked on a much bigger fiscal stimulus introducing progressive measures to improve income inequality,” she said.

This is the most recent example of a strategy that worries economists and experts -- officials doling out handouts while failing to employ plentiful resources to more broadly address structural problems like a chronic lack of living space and limited social support. While the political crisis and recession provide Chief Executive Carrie Lam with a chance to address immediate needs and long-term issues, the government is being criticized for again coming up short on both fronts.

“Hong Kong is not known for its stimulus spending, in fact the government has often prided itself in maintaining low spending and less intervention,” said Mathew Wong, assistant professor at the Education University of Hong Kong. The city’s low-tax, low-spending philosophy has been seen for decades as a virtue, and has delivered a surplus every year since 2005.

Here’s a summary of the measures announced so far:

August Package

Increased an income tax exemption first proposed in the 2019-20 budget for additional taxpayer savings

Extra allowance to social security recipients equal to one month’s standard rate; HK$2,500 per head subsidy to kindergarten, primary and secondary day-school students; one month’s rent for low-income tenants in public rental units; one-time electric bill subsidy of HK$2,000 ($255) per household account

Assorted fee waivers, rent reductions and loan assistance for small businesses

October Package

Fuel subsidy for commercial vehicles including taxis, some minibuses and others, worth HK$1.37 billion

Four-month program for travel agencies to offer HK$120 for each inbound overnight visitor and HK$100 for each outbound overnight traveler

One-time survey fee subsidy for commercial marine vessels worth HK$16.5 million

Rent reductions and fee waivers for some government properties

October 16 Policy Address

Long-term initiatives to boost the amount of public housing, reclaiming of private land

Help to first-time home buyers by loosening mortgage restrictions

Investments in the tech, trade industries, tax concessions for maritime industry

Ferry and public transport subsidies, tunnel toll waivers

Initiatives targeting health care, students, the elderly and disadvantaged

These fiscal measures were announced before GDP data at the end of October confirmed a recession, with the economy contracting 3.2% in the third quarter from the three months previous. Many observers were surprised by the ferocity of the downturn. The business outlook also continued to deteriorate in October, according to the latest reading from IHS Markit.

Hong Kong’s annual spending on social welfare also lags its peers. The average country in the Organization for Economic Co-operation and Development spends the equivalent of just over 20% of its GDP on social expenditures alone. Hong Kong’s entire city budget equals about 22% of the GDP, with spending on education, social welfare and health accounting for just less than half that total.

It’s “very likely” Hong Kong will miss its full-year growth target of 0 to 1%, Chan recently told reporters.

What’s Next

There’s much debate over what to do next.

“Obviously what the government needs to think now is how to launch some stimulus,” said Raymond Yeung, chief economist for greater China with Australia & New Zealand Banking Group. “The Hong Kong government has the firepower financially to support the retail, hospitality sectors.”

The city’s shopping malls and restaurants have been among the most hard hit, with the jobless rate in food and beverage service jumping to a six-year high.

Some in the private sector have already taken matters into their own hands. Billionaire Li Ka-shing promised HK$1 billion in emergency support in October to help small and medium-sized businesses.

Johanna Chua, Citigroup’s chief economist for Asia Pacific, sees the third quarter as a possible bottom for the economy.

“The key thing is the ability to maintain law and order, rule of law and maintain some amount of stability,” she said in an interview with Bloomberg Television. “Confidence, it takes a while to rebuild that.”

To contact the reporters on this story: Eric Lam in Hong Kong at elam87@bloomberg.net;Enda Curran in hong kong at ecurran8@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Jodi Schneider

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