Transcript

Transcript of the Regional Economic Outlook on Asia and Pacific Press Briefing

May 3, 2023

Speakers:

Krishna Srinivasan, Director, Asia and Pacific Department, IMF

Thomas Helbling, Deputy Director, Asia and Pacific Department, IMF

Moderator:

Ting Yan, Senior Communications Officer, Communications Department, IMF

MS. YAN: Welcome to this IMF press briefing on the Regional Economic Outlook on Asia and Pacific. My name is Ting Yan, senior press officer at the IMF. Joining me today are our two speakers from the Asia and Pacific Department. We have Krishna Srinivasan, director of the Asia and Pacific Department and also Deputy Director Thomas Helbling. It's a great pleasure for us to launch this report here in Hong Kong and see everyone in person today. Krishna will start with some opening remarks and then we will be happy to take your questions. With that, Krishna, the floor is yours.

MR. SRINIVASAN: Thank you, Ting. Good morning to everyone here in Hong Kong. It's nice to be with you in person after several years of virtual engagement. Thank you very much for joining our event, which is where we launched our Regional Economic Outlook for Asia and Pacific.

Just to give you a little bit of backdrop, global growth is expected to decelerate and bottom out in 2023 as rising interest rates and Russia's war in Ukraine weigh on activity. Global inflation is easing but remains stubbornly high. And banking strains in the U.S. and Europe have injected greater uncertainty into an already complex landscape. But against a somber backdrop of a challenging year for the world economy, Asia and Pacific remains a dynamic region.

So here are our growth forecasts which you're familiar with by now. These were released during our Spring Meetings in Washington, D.C. Now, Asia's domestic demand has so far remained strong despite monetary tightening, while external appetite for technology, products and other exports is weakening. Growth in Asia and the Pacific is expected to increase to 4.6 percent this year, up from 3.8 percent in 2022. The biggest driver of Asia's upward growth revision this year is China, while other emerging economies in the region are on track to enjoy solid growth, though in some cases at least at slightly lower rates than seen last year. So you are familiar with these numbers, so I won't repeat the numbers here, but what do these forecasts mean? It means that Asia and Pacific is driving global growth. The countries in the region are combined to account for about 70 percent of global growth in 2023. This is a much larger share than we've seen in the past few years. And just two countries, India and China, account for about 50 percent of global growth.

Now, going beyond the forecast, let me focus on a few countries where things are pretty dynamic. Let me start by discussing China, where the reopening of the economy will provide fresh momentum for the region's growth. The Chinese economy is expected to expand by 5.2 percent in 2023, and data from the first quarter have confirmed our forecast for a dynamic start of 2023, with a strong rebound in consumption, as you can see in the chart on the left-hand side. At the same time, the property sector is recovering more slowly and is expected to remain subdued. And you can see that in the middle chart.

Looking forward, PMI surveys are showing a relatively strong expansion of activity, with the recovery expected to be led by services. I know that the PMI for manufacturing came out less than what one expected, but notwithstanding that, the dynamism of China's economy is pretty strong. So the growth prospects provide a real momentum for near term growth in the region.

The strong growth in China is behind our revision in this edition of the WEO, with growth revised by 0.8 percentage points in 2023. You can see that the left-hand side chart where we compare our numbers from the April 2023 World Economic Outlook and the October 2022 World Economic Outlook. And you can see that we have revised our numbers for China from 4.4 to 5.2 percent.

Now, we see this boosting growth in regional trading partners. Normally, the strongest pullover from China would be from its demand for investment goods. But this time the biggest effect is coming from consumption. We estimate that this will generate stronger spillovers than what we have seen in the past. One group that stands to benefit the most are neighboring countries with large tourism sectors, where the return of visitors from mainland China will provide an important boost. As you can see on the right-hand side, countries which rely a lot on Chinese tourists will benefit a lot from China's uptick in growth. And the middle chart clearly shows that this time around, consumption and not investment is leading prospects in China.

Now, what do we see beyond growth? Inflation -- we find to be stickier than expected. Now, to be fair, headline inflation has been easing in Asia and elsewhere. But it remains above target in most economies in the region. As commodity prices recede, core inflation is becoming a more important driver of headline inflation and is proving to be more sticky. Output gaps for Asian economies are either closing or have already closed, and currency depreciation since last year is passing through the domestic prices.

So these two factors explain why we think inflation is going to be sticky. One, output gaps are closing, and number two, passthrough from depreciation is going to linger on for some time. These factors put together suggest that the battle to contain inflation is not yet over. And yet monetary tightening has slowed down or has been in a pause in most countries in the region. Given there's still substantial inflation risk, we think monetary policy in the region will need to remain tight until inflation falls durably back to target. So monetary policy has to be tighter for longer. The exceptions are China and Japan, where output is below potential and inflation expectations have stayed muted.

Now, what does this mean for fiscal policy? In general, debt in Asia has risen, and this has implications for the fiscal policy stance. And we believe that fiscal policy may need to tighten further to stabilize debt. There's a risk associated with high debt and rising interest rates. Public debt levels in the region have increased significantly compared to pre-pandemic. Most governments in the region are expected to tighten budgets this year and the next.

However, the projected consolidation may not be enough to stabilize debt, particularly since interest rates are making the debt burden even more onerous. Fiscal consolidation may need to be more aggressive to ensure sustainability over the medium term. But policymakers must strike a balance between supporting growth, protecting the vulnerable, and addressing debt concerns.

Beyond public debt, elevated debt burdens in the corporate and household sectors give rise to pockets of financial vulnerability in Asia Pacific. Careful monitoring of market risks and corporate credit risk exposure in the financial sector is essential for safeguarding financial stability.

Let me finish with this last slide here. It's about financial risks. The global banking stress has had a limited impact on Asian markets so far. Direct exposures of Asian banks and investors to Silicon Valley Bank were minimal. Equity prices for Asian banks have been resilient and have largely made up the losses following the global selloff at the time of the failure of the Silicon Valley Bank. There are even some signs of loosening financial conditions in the region.

As markets reprice the path for the federal funds rate, the U.S. Treasury yield has fallen substantially. This has led to yields on Asian local currency bonds to fall and a strengthening of Asian currencies. Still, pockets of private sector financial stress may be emerging due to factors such as increased leverage and risks from the real estate sector. Asian financial systems should be able to withstand these stresses, being well capitalized and with strong liquidity buffers, but financial supervisors will need to remain alert.

With that I'll stop. Happy to answer your questions. Thank you.

MS. YAN: Thank you very much, Krishna. Now we're happy to take your questions. If you have any questions, please raise your hands, identify yourself with name and media organization and try to be brief.

QUESTIONER: Thank you, good morning. My name is Jin Dong and I'm from China Central Television Asia Pacific Bureau. So my question is currently people enjoy the long public holiday in China and the holiday economy in China is booming. We also think the hot holiday economy also reflects that the Chinese economy is very active right now. So what’s your comment on that?

And also we know the Chinese economics will keep long-term positive development in the future. So what is the significance to the global economic recovery? Thank you. My question goes to Srinivasan, Director. Thank you.

MR. SRINIVASAN: Thank you. I'm going to take a little bit of your question and then my colleague Thomas Helbling, who oversees China, will take on some of the other parts of your question. So, you're absolutely right that in terms of what we've seen in China this year is a rebound in consumption. There was a chart which I showed in my slides where you can clearly see in quarter one consumption explains a lot of the growth. And that's partly because during the pandemic, consumption was significantly repressed. People were saving a lot, consuming less. Now the economy opening up, mobility rising, you're going to see an increase in consumption. In fact, a lot of the pickup in growth this year, the 5.2 percent which I mentioned, is based on a consumption-led recovery. This compares to the past where usually when growth in China was strong, it was led by investment. This time around you see a shift and this also speaks and one wants to make this durable. In the past, we have said that for China's growth to be strong and durable, there has to be rebalancing away from investment towards consumption. The big question is this year we projected to be led by consumption. Will that continue going forward? Because that will be important to ensure strong and sustainable growth in China.

Your second question was how does that affect the region? Again, a point I like to make is intra-regional trade is 50 percent. In other words, countries in Asia, when they export on average 50 percent is within the region and China is a key player there. So, to the extent that China is rebounding, you're going to see a strong impact on the rest of the region. And it's going to affect those countries this time around which export directly final consumption goods in China.

And number two, those countries which depend on Chinese tourism. To give an example, I just came back from Cambodia and Vietnam. Those countries will benefit a lot more from Chinese uptick in growth. Compared to the past, where investment-led growth was the key reason, countries which export minerals and so on and so forth will benefit less this time around from the growth in China. Thank you.

MR. HELBLING: Thank you. Maybe just to add, in the medium term, of course, there are a number of factors at work. Two factors we have highlighted. One has been weaker productivity growth. Second, an aging population which will weigh on medium-term growth. On the other hand, China also has opportunities and policies to strengthen medium-term growth. I think now where China is an important part to support growth will be to support innovation, new technologies and other measures to strengthen productivity. And then measures to slow down the impact of the aging population on the labor force, such as raising retirement age or strengthening education and human capital. Thank you.

MR. SRINIVASAN: Just to add one thing to what Thomas said. We have revised long-term growth numbers for China to 3.4 percent. In the absence of reforms, which Thomas talked about, if China embarks on those reforms, then long-term growth could be 1 percentage point higher. If those reforms which Thomas mentioned are carried through.

MS. YAN: Thank you. Krishna and Thomas. The lady in the second row, please.

QUESTIONER: Hi, Jill Disis with Bloomberg News. We've seen over the last couple of days some signs that maybe there might be more pro-growth policies needed in China after all. The factory PMI figures that came out Sunday were, as you said, worse than expected. Although I know that, notwithstanding, you're still seeing quite a lot of growth this year, we just saw a statement from the Politburo on Friday saying the recovery still needs some additional work, that demand has been insufficient.

Are you at all concerned right now about the sustainability of the economic recovery in China despite the really strong first quarter and whether that demand is going to kind of continue and turn into something that can keep that trajectory going for the rest of the year?

MR. SRINIVASAN: Thank you. So, yes, we have growth at 5.2 percent. And you're right that the PMI numbers which came out yesterday or day before, wasn't as strong as one expected. At the same time, the trade figures came out very high, sone can't read too much into weekly and monthly numbers, but we do expect growth at 5.2 percent.

I think there are risks to growth both ways. There is upside potential and there are downside risks. I would say that China has the policy space. It can keep monetary policy accommodative because inflation is still very much absent or very much muted. It also has a fiscal space to provide support.

I think going beyond just policies, I think what you need is to limit the downside risks, which is to address the problems in the property sector more comprehensively. Because as we identify in our regional economic outlook, one of the risks to the Chinese economy relates to the property sector. And addressing that in a comprehensive way would be very important.

Maybe on that, Thomas can give you a little bit of idea on what other areas where we should be pushing on the property sector.

MR. HELBLING: Thank you. Krishna just elaborating on that, on the property sector, the government has stepped up measures since last fall. A lot of the measures have focused on boosting financing to developers to complete incomplete housing or pre-sold housing and support developers. In our view, this has benefited the strong developers. It has helped the market stabilize at relatively low levels.

What remains to be addressed are the weaker developers, which are still suffering, and also the status of the pre-sold but incomplete housing stock, which is weighing on household confidence and on sentiment in the market. And there we have argued that the government should more proactively support restructuring of weak developers and also of the property that has been presold but not yet completed. Thank you.

MS. YAN: Thank you. Lady in the third row, please.

QUESTIONER: So thanks very much. Georgina from Reuters. Just wanted to follow up on Krishna, one of your comments on consumption has been shifted to the fore in driving economic growth in China. But one thing I wanted to still ask is, you mentioned how the export countries that have traditionally export minerals to China might not benefit as much this time around. I'm just wondering what is the main reason for this? I mean, is there any sort of pricing reason, any inflation come into play?

The last question that I have would be on Japan. Recently, the governor definitely has mentioned that they're going to stick with yield-curve control, they're going to stick with easing stance. So your report mentioning that Japan and China being two exceptions, that they shouldn't embark on tightening. For Japan, in other words, do you agree with Governor Ueda's recent comment and his rationale for sticking with it? And what would be your particular reason for carving out Japan as an exception for IMF perspective?

MR. SRINIVASAN: Thank you. Very good questions there. So, when I said that countries which export minerals won't benefit so much, that relates to the first point I made where typically or historically, when there's been uptick in China's growth, it's been led by investment, large-scale infrastructure investment and so on, which depend on things like minerals and oil and so on and so forth. And so that provides a fillip to these to the countries which export those and that's where you would see the countries benefiting. But this time around, because it's being driven by consumption, we are going to see countries which export directly consumable goods benefit more.

On Japan, let me make two points there. One is in the case of Japan, you do have both upside risks inflation and downside risks inflation. What do I mean by that? In the sense that if you look at the recent Shinto wage negotiations, there's been more upside to it than what we had expected. So that puts upward pressure on prices. But we expect prices to come below the 2 percent by 2024. And historically what you've seen is prices go up and they come down within target very soon.

So, the question here is, if you have prices, inflation durably at the target, then you think you have reached whatever goal you have kept for yourself. Given the fact that inflation has generally over longer term come back to below target, and we expect it to come below target by 2024.

What we've argued for is greater flexibility because there's upside risk to inflation, because of Shinto negotiations and so on, they should allow greater flexibility in yields. And that's what we've discussed with them during the Article IV Consultation. We've talked about other measures they could do in terms of if they had to move from accommodative monetary policy to normalizing monetary policy, then having flexibility in the yields would be one way of doing that, making it less disruptive going forward.

MS. YAN: Thank you.

QUESTIONER: Thank you. Holmes Chan from AFP. I have two questions. Thomas just now spoke a little about China's housing market. To what extent can you elaborate on whether that is still a systemic risk and how the housing outlook plays into IMF's view of China's economic growth? And my second question is what is the latest IMF view on the economic outlook of Sri Lanka and how it compares to regional economies in light of the $3 billion IMF bailout recently? Thank you.

MR. HELBLING: So on housing, as mentioned, the government has stepped up efforts to support the sector and the sector has stabilized, we would say, at relatively weak levels. But that's the good news. We think that has overall limited the risks. I think now what we are concerned is that the recovery is very uneven in the market. You have in some cities, and for strong developers, you see stabilization, if not the rebound. And you see that the weaker developers and some of the weaker regions with weaker housing markets, economically weaker, and perhaps larger imbalances in the housing market, there the recovery hasn't yet taken place. So that's the reason why we have advocated for further policy measures just to further limit potential risks from the real estate sector.

MR. SRINIVASAN: On your question on Sri Lanka, Sri Lanka is a country with a quintessential problem where you had twin deficit, you had a large increase in the fiscal deficits, putting pressure on the external accounts, reserves falling, exchange rate falling. And so they approached the Fund for a Fund supported program, which was approved by the Board not too long ago. And that places the emphasis on one macroeconomic stabilization, bringing inflation down. Again, the fiscal consolidation is based on revenue-based consolidation. That's partly because Sri Lanka has among the lowest in terms of revenue mobilization, tax collection, and that goes back to the policy mistake they made pre-pandemic, wherein they cut taxes across the board, whether it's VAT, corporate tax, and personal income tax. So the Fund supported program is a revenue-based consolidation which provides stability to the economy.It also wants to rein in inflation, which went through the roof. It addresses governance and corruption issues in Sri Lanka. It's the first country in Asia which has had a deep diagnostic on the issue of governance and corruption and that will feed into the program going forward. It's also a program where we have a floor on how the country should support the poor and the vulnerable. And to make sure that the fiscal support they provide is temporary and targeted to the people who need it most. So it's a very comprehensive program and the fiscal consolidation by itself will not be enough.

The next step for them is to make good faith efforts to reach a debt agreement with their creditors -- private creditors, official creditors and so on. In terms of growth outlook itself, we had a contraction of 8.7 percent 2022. We have growth contracting at 3 percent in 2023 and then making a mild recovery. But the issue will be for Sri Lanka to implement the program well so that debt can be made sustainable, which is a big difference from previous programs, and the country can be put on the path to prosperity.

MS. YAN: Thank you. Since we're on Sri Lanka, we actually received two questions from the local media, Hiro News. So Vajira Yasarafna is asking will Sri Lanka emerge from the hardship sooner than expected as current inflation has been declining faster? And the second question is what’s the importance of restructuring local debt to go ahead with current environment of the economy?

MR. SRINIVASAN: Thank you. Again, inflation has come down, albeit from high levels. So this is again work in progress. Inflation has to come down durably because let’s not forget, inflation is the worst kind of tax on the poor, and the poor and the vulnerable are hurting the most. And so you want to get inflation under control. And so that's something which, again, in terms of monetary policy, with support of fiscal policy, has to bring inflation down to levels which are reasonable.

In terms of restructuring, as you all know, the debt in Sri Lanka was assessed to be unsustainable. And that's why, before the program could be approved, there had to be a path towards restoring sustainability. And that includes restructuring debt to all creditors -- private creditors, official creditors, and to some extent, domestic debt, for the simple reason that debt sustainability is quite a big challenge in Sri Lanka. But when you restructure domestic debt, you have to make sure that you also safeguard financial stability.

So these are issues on which the government is currently working and we'll flesh out a strategy on that, hopefully very soon. That's the next step.

MS. YAN: Thank you. We have the gentleman here.

QUESTIONER: Thank you. Kensaku Ihara from Nikkei. My question is also on China's property sector. So how do you see the risk of increasing non-performing loan of Chinese banks and deteriorating finances of local governments? Thank you.

MR. SRINIVASAN: It was about financial stability implications and what implications for local provinces?

MR. HELBLING: Sorry, could you repeat the second part of the question? You mentioned local government finance.

QUESTIONER: Yeah. So, risk of nonperforming loans of Chinese banks, it is increasing. And the deteriorating finances of local governments such as Guizhou or they are struggling with dealing with bad debt from the property sector.

MR. HELBLING: So on financial stability risks, I think they have so far not been any strong signs of larger nonperforming loans. Part of the reason for that is forbearance measures by the government during the pandemic to facilitate the adjustment of the economy and not worsen the downturn. As the situation normalizes and some of these forbearance measures will gradually be phased out, we expect an increase in nonperforming loans. We expect this increase to be limited and manageable for the bigger banks. It may be more difficult for some of the smaller banks, but the government has also stepped up supervision and is revamping the financial regulation agency and has rolled out new measures to strengthen bank capital ratios, bank liquidity and we expect, as in this context, it will also address how banks will resolve the resolution of nonperforming loans.

As you mentioned, some local governments now with the downturn in the real estate sector, some of the local governments have faced increased pressures. These have been so far addressed mostly at the local level. We have advocated that in some cases as for the restructuring, that some of the impetus needs to come from the national government to resolve some of the tensions and give guidelines on how to do restructuring and possibly temporarily support local governments. We will pick this up in our next visit to China in May. Thank you.

MS. YAN: Thank you. In the back.

QUESTIONER: Hello. Some questions from RTHK. So the Hong Kong government just announced the first quarter GDP growth of Hong Kong is 2.7 percent. Do you think this is according to the IMF's expectation?

And also the IMF reduced the growth prediction of Hong Kong's GDP in 2023 to 3.5 percent. What is the reason behind this? And also now the Hong Kong government is actively attracting Chinese tourists back to Hong Kong. Is there any adjustment room for the growth projection for Hong Kong's 2023 GDP?

And the final question is why the Asia Pacific region is especially resilient to the current banking crisis in the U.S. Thank you.

MR. HELBLING: On Hong Kong, I was wondering about Q1 GDP. We haven't quite looked at the data yet as they just come out, but overall I would note that for our annual growth we upgraded that most recently. We will release our staff report for the Article IV consultation with Hong Kong fairly soon. So 3.5 percent is an upgrade relative to what we had last year in October and overall we still see the recovery, the rebound on track.

As in the case of China, we think after the pandemic, some of the restrictions that particularly apply to households with the reopening of the border, with the easing of mobility restrictions, there will be a strong rebound in consumption in household-related activity and that we still see on track. Thank you.

MR. SRINIVASAN: On your second question, I think it's fair to say with the direct exposure of financial institutions in Asia to the institutions affected both in the U.S. and Europe has been limited, and that partly explains why they have not been affected by the turmoil in the U.S. and Europe. Also, I think the policy measures taken in those countries were pretty strong, which has somewhat quiet market sentiment.

That said, I would say that leverage, like I mentioned, private debt or debt overall in Asia has risen quite sharply from pre-pandemic to now. So, one has to be careful and that's our advice for countries is to monitor balance sheets very carefully. Monitor risks very carefully, because, as we have mentioned, as a world, interest rates were low for a very long time. From there now we have moved to a much higher interest rates. So, where these risks are hidden is something which we have to be humble about in knowing exactly where they are. So, it's important for central banks, for prudential authorities to monitor these risks carefully and address them head on when they see them.

QUESTIONER: Hi. This is Stella from Hong Kong Economic Journal. I have two questions. Firstly, I would like to follow up on the outlook for China economy, especially on U.S.-China tensions, because recently there are export controls on chips and also latest on AI technology, et cetera. So how will it weigh on the outlook for China going forward, and how do you think these things will evolve?

And my second question is on follow up on Hong Kong's economic outlook. So what do you think are the risks or potential downside risks for Hong Kong economy in the future? Thank you.

MR. SRINIVASAN: Okay, let me take the first question. I think that the issue you touched upon is something which we've been talking about quite loudly, which is the issue of fragmentation. We see that starting from rising trade uncertainty to actual tariffs in the U.S. and China, and following the war in Ukraine, there's been the risk of fragmentation of countries not wanting to trade with each other. Various reasons for undercutting trade have risen. And we've done a lot of work on this in our World Economic Outlook. And if fragmentation goes wrong, then the losses could be as high as 7 percent of global output. That could be a permanent loss. And if you add to that technological decoupling, which is about 5 percent, the losses could be as high as 12 percent. So, if the world gets fragmented, nobody wins, everybody loses. And it’s that issue which one has to be very careful in understanding that.

In the case of China, what we've seen, I think the statistics which I quote is just if you look at the tariffs between 2017 and now, the impact of those tariffs, global GDP went down by 0.4 percent in 2022. So, these kind of trade tensions hurt everyone. And the number I gave you reflects both the impact on China, it reflects an impact on the U.S. and the spillovers to the rest of the world. So, one of the medium-term risks or long-term risks we talk about is a risk of fragmentation. If fragmentation goes ahead the way we are pointing out, then long-term growth across many parts of the world will decline. Everybody will lose, nobody will gain. And so one needs to fight fragmentation through greater tilting towards multilateralism.

You had a question on Hong Kong which I’ll ask Thomas to answer.

MR. HELBLING: You ask about risks to the economy. Overall, I should say that in the April World Economic Outlook and in the Regional Economic Outlook we see now risks as more balanced, and that's mainly to the economic reopening and easing of restrictions on mobility and the border opening. At the moment, overall, we see risks as more balanced.

On the downside, at the moment, we are mostly worried about external risks. There are two elements to that. On the real side, the global economy has been slowing in the World Economic Outlook. If you recall, global growth is slowing this year relative to last year. There are downside risks that could be partly stronger impact of the monetary tightening that has already taken place, including some further tightening of credit in the United States or in the euro area, which could then hit Hong Kong through trade channels. There's also possibility that some of the financial risks that could potentially materialize, especially in the advanced economies at this point, could also feed back through tighter financial conditions, which would then also affect financial conditions in Hong Kong and domestic demand.

On the upside, we see some scope for stronger pent-up demand in Hong Kong as well as in China, from which Hong Kong would benefit most directly in the region. Thank you.

MS. YAN: Thank you. Do we have more questions in the room? Yes.

QUESTIONER: Thanks. Yeah, I have a couple of questions on India. So in the IMF view, what more does India need to do to ensure that economic growth stays elevated in light of the OPEC plus output cut and the slowing pace of exports?

And then my second question is how much of the upcoming heatwave climate change issues in India is IMF factoring into economic and inflation projections?

MR. SRINIVASAN: Thank you. So for India, we have lowered our forecast for this year to 5.9 percent from 6.1 percent. It's a very modest revision and that reflects a modest slowing of consumption. That said, I think on financial exports of services is really growing very sharply. So that's, I think, a big upside potential to growth in India. Your question was on reform.

QUESTIONER: The question was on climate change issues. Is the IMF factoring climate issues into their projections?

MR. SRINIVASAN: To be very honest, this is work in progress. We have country teams actually fully internalize the impact of climate change. I used to work in Latin America and Caribbean where the Caribbean countries are hit very often by natural disasters. Those country teams internalize the impact of climate risk and macro frameworks. In other countries we do it to the extent possible that we can. And so that's something that's work in progress. But yeah, it does to some extent reflect that.

MS. YAN: Thank you. I think we have time for one last question here. Yes.

QUESTIONER: Do you think talent and capital exodus in Hong Kong will affect Hong Kong’s long-term economic prospect? And, you know, Hong Kong had dipped into budget deficit for last few years. Do you think budget deficit will become quite normal in the future, next year and ultimately affect the financial prudence of Hong Kong and ultimately affect the confidence of the Linked Exchange Rate System in Hong Kong?

MR. HELBLING: Thank you. A number of questions. Let me start with government finances. So obviously, like elsewhere, government finances have weakened during the pandemic. The government has stepped up support to the economy, to households during the pandemic. The government now intends to reduce that and bring its finances back to balance. Overall, though, we should note that Hong Kong's government finances are still in a very strong position. It has fiscal reserves of close to 30 percent of GDP and it has a very strong fiscal framework and a track record of prudent fiscal policy overall.

So, just to summarize, we think what the government has done during the pandemic was the right thing, to support, and now the government is gradually unwinding that support, which is also the right thing to do.

You mentioned exchange-rate system. Overall, we think that system has benefited Hong Kong. It has provided a stable anchor for the economy and the financial system for several decades. It works, so no need to change. We also think the exchange system is underpinned by very strong fundamentals. Strong government finances, as mentioned, very established and well-executed financial regulation that has kept systemic risks at bay. More broadly, a strong economy, a very flexible and resilient economy, flexible labor markets that have shown the ability to adjust also to external shocks so that there would not be a need for the exchange rate to adjust. So overall, we think the fundamentals are there and Hong Kong should continue with the exchange system.

And then you had a third part of the question, talent and capital outlook. Overall, if you look at Hong Kong's position as a financial center, I think it's very clear and is established, has continued. If we look at some of the balance sheet data, there's no indication that there has been a change to Hong Kong status as a financial system. Over the past few years the pandemic and some of the restrictions on mobility and travel have been a handicap. That has partly explained weak labor force growth. But the government is now considering measures to strengthen the inflow of talent. With the strong financial system, strong prospects going forward and the need for talent, we think the market will play out and talent will flow back to Hong Kong as needed.

MS. YAN: Thank you very much, Thomas and Krishna. And thank you everyone for joining us today. This concludes our press briefing.