Wage Subsidies for Coupons? What a Deal

Lam announced more money will be doled out to keep the economy going

This morning Hong Kong leader Carrie Lam Cheng Yuet-ngor announced there will be a third round of financial aid for businesses adversely affected by the coronavirus pandemic -- including supermarket chains like ParknShop and Wellcome.

So far Lam said HK$290 billion has been doled out and resulted in the economy boosting by 5 percentage points.

The second round of the wage subsidy scheme of HK$81 billion will be available August 31 and last from September to November.

But why are these two supermarket giants eligible for the wage subsidy scheme?

ParknShop says prices have gone up because of the pandemic

Jardine Matheson-owned Dairy Farm operates supermarkets like Wellcome and Marketplace, as well as convenience stores like 7-Eleven, Mannings and Ikea. Dairy Farm received HK$399 million in the first round of the wage subsidy scheme, while ParknShop and Watson's got HK$161 million, both owned by AS Watson, controlled by Li Ka-shing's CK Hutchison Holdings.

AS Watson has about 260 supermarkets, and Dairy Farm has over 200 in Hong Kong.

When Lam announced the two supermarket chains were eligible for the scheme, eyebrows went up, but she quickly added a caveat.

"During the past few months, supermarkets generally saw sales remain the same or did even a little bit better," she said. "I will demand two supermarket chains -- ParknShop and Wellcome -- offer discounts to the public and cash coupons to the underprivileged in return for receiving wage subsidies."

Wellcome can get subsidies in return for helping the poor

There is no way the supermarkets are only making the same or just a bit better -- with restaurants forced to shut at 6pm, the vast majority of Hongkongers are making dinner at home. And where do they buy it? In the supermarket!

Most people are spending more of their money on food these days, even if it's just buying milk, pasta and rice, and the numbers show it.

In June, supermarket sales rose 4.5 percent compared to last year, a 7.3 percent increase in May, 16.1 percent in March, and 11.1 percent in February and January combined. Surely these are decent steady increases when other sectors are "swatting flies"?

But perhaps most galling is the government demanding the supermarkets give out discounts in return for wage subsidies. How about not making these companies eligible for these subsidies since they are doing a brisk business every month? Why create more bureaucracy in adding this condition? Why not give that money to smaller companies that desperately need to stay afloat in the next few months?

Cheng questions subsidy to supermarkets

Even the pro-Beijing DAB or Democratic Alliance for the Betterment and Progress of Hong Kong wondered how effective it would be for supermarkets to hand out coupons to the disadvantaged. How would that be determined? How much would be given out?

"It's hard to say how much discount is a reasonable discount," said DAB lawmaker Vincent Cheng Wing-shun. "So, what we are suggesting is we put at least half of the resources to the public, not only giving discounts to fulfill this subsidy scheme."

Some careful shoppers noted prices of some goods had gone up. When queried by RTHK about this, ParknShop replied that the wholesale prices of many products, as well as transportation costs had gone up drastically because of the pandemic, but said it would do its best to contain costs and keep prices reasonable.

Labour and Welfare Secretary, Law Chi-kwong had to perform some political gymnastics this afternoon in justifying the supermarket chains in receiving subsidies.

"The employment support scheme is to help the employers to help the community, in particular employment," explained Law.

Law says some companies should give back to the community

"But there are definitely companies who obtained these subsidies, they are not seriously affected. So there is some need for them to... sort of, pay back to the community," he said.

So in return for subsidies that help conglomerates save money from paying part of their employee wages, they can just hand out a bunch of coupons to the underprivileged? What a deal!

Perhaps another hair-brained idea cooked up by Lam and no one in her cabinet dares to point out the inconsistencies and yet they have to defend the measures to the skeptical media and public.

Back to the drawing board?

Li Ka-shing's Global Observations

Li Ka-shing talked to the media about his outlook on the global economy

Even Hong Kong's Superman, tycoon Li Ka-shing is feeling the pinch.

In today's press briefing following CK Hutchison's announcement of profit earnings, Li said the city is experiencing some of its harshest economic conditions in two decades amid global weakness, adding that the downturn in property and retail sales was worse than during the SARS epidemic.

"The global economy in 2015 experienced mounting deflationary pressures resulting in a collapse in commodity prices and slow global trade," he said in a filing to Hong Kong's stock exchange.

Hong Kong only makes up 6 percent of his investments

"In addition, volatility in global equity, debt, commodity and currency markets may increase against a background of continued monetary easing in Europe, increased global political uncertainty, economic and refugee issues in Europe, as well as increased geopolitical risk in the Middle East and African regions.

"I am confident that Britain will stay in the European Union. If it leaves the EU, we will be more cautious and reduce our [future] investment in Britain," he told reporters."

In Hong Kong, he said the economy is experiencing some of its toughest moments in two decades, with "property sales and retail sales [at times] worse than during the SARS epidemic [in 2003]."

But despite these challenges, CK Hutchison, the revamped conglomerate that includes Li's non-property assets, posted a better than expected net profit at HK$31.2 billion, slightly higher than the HK$31 billion estimate in a Thompson Reuters poll of 14 analysts.

Li believes Britain will not leave the EU. Is he right?

Only 6 percent of its earnings (before interest, taxes, depreciation and amortization) came from Hong Kong, compared to 34 percent in Britain, 19 percent from Continental Europe, 13 percent from China, 8 percent from Canada, and 18 percent from Australia and the rest of the world.

About 35 percent of CK Hutchison's investments were in infrastructure, 24 percent in telecommunications, 16 percent from retail, 13 percent from port and related services, 10 percent from energy, and 2 percent from finance and investment.

Interesting Li should comment about the challenging economic climate when his company is doing so well.

But alas we're not in the same league as the tycoon. Interesting to note he does not think Britain will leave the EU. We'll have to see if he's right or not.