Hong Kong eyes slower 2008 growth

China's economic growth is having an effect on Hong Kong

Hong Kong says economic growth may slow from 6.3% in 2007 to 4% or 5% in 2008, but Financial Secretary John Tsang said he remained "cautiously optimistic".

Unveiling its 2008/09 budget, the government posted a record provisional financial surplus of HK $115.6bn ($14.8bn; £7.46bn) for 2007/08.

It forecast inflation would rise 4.5% in 2008, but that one-off budget measures would reduce this to 3.4%.

The budget also featured a number of wide-ranging tax rebates.

Mr Tsang unveiled measures including various one-off income and property tax rebates, as well as a cut in the standard tax rate.

A salaries tax rebate was also announced.

He also proposed an immediate end to duties on wine, beer and other alcoholic drinks except spirits, in order to promote Hong Kong's wine trading and distribution industry.

'Economic integration'

China's economic growth is creating demand for services in Hong Kong.

"The sustained rapid economic growth of the mainland and its increasingly intensified economic integration with Hong Kong will greatly promote our economic development and cushion the impact of the slowdown on Hong Kong," he added.

Mr Tsang, making his first budget speech, said the impact of the US sub-prime mortgage crisis on Hong Kong and Asia had so far been limited.

However, he said the fiscal balance would move into the red in 2008/09 as Hong Kong felt the impact of a US slowdown, while predicting strong surpluses in following years.

"The external environment is still going to be challenging, and there's no doubt it's going to have quite a negative impact on Hong Kong," said Eli Polatinsky, an economist at Macquarie Securities.

"But the domestic side, particularly in terms of consumers, is still very strong."