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Hong Kong's Top Finance Official Says Economic Recovery on Track

Hong Kong's financial secretary says the city's economic rebound remains on track. This rosy economic forecast comes as the city enters a leadership transition.

Financial Secretary Henry Tang appeared before Hong Kong's Legislative Council in an upbeat mood Wednesday to deliver his annual budget speech.

Last year, he said, Hong Kong's economy grew its fastest in four years - expanding by 8.1 percent. And thanks to land sales and a bond issue, the government is set to post a surplus in the fiscal year ending this month - the first since 1999.

"Our economy is improving steadily and so is the government's financial position," said Henry Tang. "This is encouraging."

But the financial secretary warns the economy remains vulnerable to external shocks - such as rising oil prices or weakness in the U.S. economy. The United States is one of the city's top trading partners and the local currency is pegged to the U.S. dollar.

Mr. Tang says economic growth this year will range between 4.5 percent to 5.5 percent. He expects the deficit to return in the coming fiscal year but aims to entirely eliminate overspending by 2008.

Despite the government's struggle with the deficit, Mr. Tang said that it is premature to introduce new taxes or raise existing ones. Instead, the government proposes abolishing taxes on estates to increase the competitiveness of its financial sector, and wants to raise tax exemptions for people caring for elderly parents and children.

"I believe that as our economy only has recently begun its recovery, we should leave wealth with the people as far as possible, in order to allow greater flexibility for economic activities," he said.

Mr. Tang's report comes as the former British colony enters its first leadership transition since it reverted to Chinese control in 1997. Unpopular Chief Executive Tung Chee-hwa resigned last week for health reasons and it is not known who will replace him.

A committee of 800 largely pro-Beijing representatives will choose Mr. Tung's replacement in July.