HONG KONG: Financial Secretary John Tsang says the local economy continued to improve over the third quarter but expressed the government's continued concern over the potential for a housing price bubble.

In an appearance before the Legislative Council yesterday, Tsang said real GDP expanded by 0.4 percent in the third quarter after a notable rebound in the second quarter.

The financial secretary said the economy is likely to return to year-to-year growth in the fourth quarter. The GDP, however, is forecast to contract by 3.3 percent for 2009 as a whole. The local economy is expected to return to positive annual growth in 2010.

Although the Hong Kong economy has entered the nascent stage of recovery, the risks are still there, Tsang said.

Tsang stated that the government didn't rule out the possibility of a double-dip in the global economy in the immediate future.

He warned investors and enterprises to undertake good risk management, as the global economic recovery might be slow in the future.

"We will continue to adopt necessary measures until the unemployment situation has improved significantly," said Tsang.

The government is also very much concerned about the possible asset-price bubble because of the continuing inflow of funds into Hong Kong, Tsang said.

The sharp rise of property prices continues to draw attention from the government. "We will watch it closely to ensure the lending in banks is prudent", he said. "We have the ability to cope with substantial capital inflows and outflows," he stressed.

He said he believes there is no certain evidence showing that the Linked Exchange Rate System is responsible for the increase in asset prices. He reiterated that revising the system would not be helpful.

He also indicated the inflation pressure was not large in the short term as the global recovery continues to be sluggish.

Tsang also sought the views of lawmakers on the 2010-11 Budget.

Lawmaker Regina Ip suggested the government introduce new taxes such as a departure tax and a soda tax. Tsang replied, voicing a concern that the new taxes might not be accepted by the public.

Tsang also indicated that the revenue might be higher than predicted, benefiting from the Land Premium in 2009. However, expenditures also are expected to be higher. Recurrent expenditures have increased 26 percent over the past 10 years. Expenditures on social welfare has risen most, showing an increase of 49.9 percent during the period.

He said the new budget will be pragmatic and prudent, and will also take into account the foundation for development and social responsibility in Hong Kong, as the chief executive has promised.

(HK Edition 12/08/2009 page1)