The government of Hong Kong has decided to airdrop about $9 billion in free money to an estimated 7 million residents in the troubled Chinese territory. From a global perspective, this can be seen as a desperate move to stimulate the local economy while the coronavirus outbreak is hitting markets hard all around the world. At the same time, the move can also be seen as part of the government’s efforts to stop the persistent protests in the city.
Hong Kong Tries to Pacify Protests With Free Money?
In December 2018, an infamous 24-year old Chinese crypto influencer, Wong Ching Kit, made headlines around the world after he was arrested for throwing stacks of HK $100 bills from the roof of a building in Hong Kong and causing mass hysteria. The self-proclaimed bitcoin millionaire stated at the time that the stunt made him “feel as if he is god” as he was raining money on the people of one of the poorest areas of the city. Now another guy is planning a similar stunt on a much bigger scale, but don’t expect him to be arrested anytime soon.
“I have decided to disburse HK $10,000 to Hong Kong permanent residents aged 18 or above, with a view to encouraging and boosting local consumption on the one hand, and relieving people’s financial burden on the other,” stated Hong Kong Financial Secretary Paul Chan Mo-po on Wednesday. With 7 million people who are estimated to fit the criteria set by Chan, this will total about HK $70 billion, which is almost US $9 billion.
This free money airdrop is the central part of a stimulus package totaling over $15 billion announced by the government. Other steps in the plan include helping poor families with a free month of public housing rent and helping struggling businesses with lower taxes and subsidized electricity.
The main reason given for the need to stimulate the local economy is the outbreak of the novel coronavirus, which “has dealt a severe blow to economic activities and sentiment in Hong Kong” according to Chan. The pandemic originating in mainland China, interrupting many global supply chains, has hurt the region’s tourism industry especially hard and the plan includes specific measures to address this.
Another tough problem for the local economy is the unending protests in the city against what many in Hong Kong see as the loss of their freedom to Beijing. The demonstrations started in June 2019 over a plan to allow extradition to mainland China which many feared will undermine the territory’s judicial independence. The controversial extradition bill was dropped in September, but the repeated police violence kept fueling the protest movement.
“Social unrest and turbulence have revealed deep-seated conflicts in our community, which cannot be resolved overnight,” Chan said. “We need to address these conflicts patiently and carefully as they have a far-reaching impact on the stability and development of Hong Kong in the future.”
Not Exactly Helicopter Money
While this free money airdrop by the Hong Kong government is part of a stimulus package, it is important to note that the implementation is quite different from similar plans in other parts of the globe. Hong Kong has long been considered as having one of the most fiscally conservative establishments in the world and this doesn’t appear set to change. There is no money printing involved and no borrowing is needed. The plan is easily financed by the Hong Kong government’s massive fiscal reserves of HK $1.1 trillion.
“Far from being created ‘out of thin air,’ to be given away, Hong Kong’s planned cash handouts have already been paid for, in full, by its taxpayers—and with plenty to spare,” explained George Selgin, Professor Emeritus of Economics at the University of Georgia. “The handouts are nothing more than a government income-redistribution scheme, with no monetary policy implications whatsoever. Those looking for a test of the theory of helicopter money, or for an outbreak of Hong Kong hyperinflation, will have to wait longer for them. With a little luck, they’ll wait forever.”
What do you think about the government handing out cash to everyone in Hong Kong? Share your thoughts in the comments section below.
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