Hong Kong's Financial Secretary John Tsang attends a press conference after unveiling the budget proposal for the fiscal year 2012-2013 in Hong Kong, south China, Feb. 1, 2012. The city's economy is expected to expand 1 to 3 percent in 2012 and the underlying inflation rate to stand about 4 percent, Tsang said in his budget speech on Wednesday. (Xinhua/Lui Siu Wai)

Hong Kong's financial chief John Tsang on Wednesday proposed measures to improve people's livelihood, enhance Hong Kong's competitiveness and support businesses amid uncertainty in the global economy.

Delivering his budget proposals for the fiscal year 2012-2013 (April 1, 2012-March 31, 2013) at a Legislative Council meeting, Tsang said that Hong Kong will face serious economic challenges this year, adding that the city should strengthen its ties with the Mainland while promoting development of competitive edge and industries.

DIFFICULT TIMES AHEAD

The city's economy grew by 5 percent in 2011 in real terms, the lower range of the forecast made in last August, Tsang said in his speech which was live broadcast for Hong Kong's 7.1 million people.

Tsang expected the economic growth in 2012 will inevitably be lower than the average growth rate over the past decade, with GDP growth of 1 to 3 percent in real terms for 2012, mainly due to the sluggish European and U.S. economies.

Talking about inflation, Tsang said that the underlying inflation rate for 2011 averaged 5.3 percent, a marked rise from the 1.7 percent in 2010. The inflation rate would ease quite visibly in the second half of 2012. The average underlying inflation rate for the year is expected to drop to 4 percent.

Looking ahead, Tsang was not optimistic about Hong Kong's export performance in the first half of 2012 due to the deterioration of the external environment. Fortunately, Asian economies, especially the Chinese Mainland, should be able to serve as an anchor for the global economy. Hong Kong's external trade may also see some improvement in the second half of this year, he said.

Tsang estimated that the operating expenditure for 2012-2013 would be 315 billion HK dollars (about 40.6 billion U.S. dollars), an increase of 6 percent over the revised estimate for 2011-12. As for the total government revenue, it is estimated to be 390.3 billion HK dollars.

Taking both expenditure and revenue into account, Tsang said, "there will be a small deficit in our accounts in the coming years, and will largely achieve fiscal balance."

For the medium term, Tsang projected the annual average growth rate will be four percent in real terms for the period of 2013-2016, while the underlying inflation rate will average 3.5 percent.