Hong Kong unveils aid package

The economy is grinding to a halt

Hong Kong's government has unveiled a huge package of financial aid to counter the impact of the deadly Sars virus, which is expected to sap economic growth this year.

Chief executive Tung Chee-hwa announced measures worth HK$11.8bn ($1.5bn;£950m).

The package includes tax rebates, lower rent for shops and reduced water and sewage charges for businesses.

Hong Kong is struggling to contain the outbreak of Sars which has killed 105 people in the territory and infected more than 1,400.

Emergency loans

To support consumer spending, the government slashed rents for public housing by a quarter.

The action from the government shows they understand the problems we are facing

Joseph Tung, Travel Industry Council

The aid deal offered a reprieve to workers in some of the most vulnerable sectors, such as tourism, catering and retailing, which have suffered as tourists, business travellers and domestic consumers have stayed at home.

The government pledged to guarantee loans to firms in the worst-hit industries from a new fund worth HK$3.5bn.

As a result, travel firms will be able to continue paying their staff, said Joseph Tung, executive director of the Travel Industry Council (TIC).

'Good gesture'

"The action from the government shows they understand the problems we are facing," Mr Tung told BBC News Online.

Wages typically make up between 30% and 40% of a travel agent's costs, but visitor bookings have slumped by more than 90% since the World Health Organisation (WHO) warned against travel to Hong Kong, he said.

TIC licenses and represents all of Hong Kong's 1,350 travel agencies which employ about 25,000 staff.

Mr Tung said he was "confident that everything will be under control" at the end of the three month loan guarantee period, allowing tourism to recover "very strongly".

The decision to waive business licence fees for firms in the worst-hit sectors - at a cost of HK$280m in lost tax revenue - was a "very good gesture" but less commercially significant than cuts in business rates, he said.

Avoiding pain

The package amounts to about 1% of Hong Kong's gross domestic product and is roughly 12 times the size of a package of measures recently announced by Singapore.

Hong Kong's government has been struggling to cut its budget deficit, a task which is likely to get tougher as the aid packages slices into its revenue sources.

Hong Kong's chief executive said "much careful consideration" had gone into devising the right mix of short-term relief against "the medium-term need to maintain fiscal balance" and avoid hurting financial markets.

Financial Secretary Anthony Leung acknowledged the budget deficit would now be "higher this year" but stressed the aid package was affordable.

There have now been almost 4,000 probable cases of Sars worldwide, according to the WHO.

Scientific teams are racing to produce a vaccine against the virus, but have warned that this may take years.