OREANDA-NEWS. May 05, 2011. In the April issue of its quarterly publication, “Economic Analysis”, The Bank of East Asia (“BEA”) points out that the major theme of the 12th Five-Year Plan (“12th FYP”) is to boost consumption by raising people’s income. In order to create more value-added jobs, the Central Government will nurture the development of both service and new high-tech industries. Moreover, the government will dedicate more resources to enhancing the social safety net, so as to encourage consumption and reduce savings, reported the press-centre of BEA.

In addition, the authority hopes to improve investment returns to increase disposable income. With interest rate liberalisation, deposit rates will be higher and banks will have greater incentives to offer a broader range of investment products to their clients.

The development of the service sector is one of the priorities of the 12th FYP, and an area in which Hong Kong can make significant contributions. Efforts should be made at all levels to break barriers that hinder market entry, especially in Guangdong, the province bordering Hong Kong. The initiatives under the Mainland and Hong Kong Closer Economic Partnership Arrangement (“CEPA”) and the Qianhai cooperation effort thus take on new urgency.

Hong Kong is a popular destination for Mainland tourists due to its relatively lower pricing, wider product range, and greater availability of new products. As most foreign imports are more expensive on the Mainland, there has emerged a backlash against high import duties, with rising calls for a reduction in import tariffs in order to narrow the price differential with overseas markets and to stimulate greater domestic consumption. These developments should ring alarm bells in Hong Kong. Despite having long served as a shopping paradise for Mainlanders, Hong Kong needs to be aware that the city’s competitive edge may disappear if the Mainland’s import tariffs are ultimately lowered.

In general, however, the 12th FYP will foster strong consumer demand, and will bring benefits to Hong Kong’s consumer services sector. The recent ballooning demand from Mainlanders for Hong Kong’s consumer goods, medical services, and asset investments exemplify Hong Kong’s distinct ability to deliver quality services. However, to capitalise on opportunities, Hong Kong must promptly expand its infrastructure and industrial capacity to meet surging demand. These initiatives will help solidify Hong Kong’s position in the national economic development.