Hong Kong's financial chief John Tsang unveiled the budget proposals for the fiscal year 2012-2013 at a Legislative Council meeting Wednesday, which is the last budget for the current Hong Kong Special Administrative Region government.

The city's economy grew by five 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.

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.

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 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.

He also announced that 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 this year.

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.

In order to better prepare Hong Kong people for the difficult time ahead, Tsang introduced measures worth nearly 80 billion HK dollars (about 10.3 billion U.S. dollars) to support enterprises and people in meeting challenges. He said the strong package of measures would help stimulate the economy by 1.5 percentage points in 2012.

Tsang pledged the government will firstly lend support to small and medium enterprises which make up the vast majority of the enterprises in Hong Kong. The measures include increasing in loan guarantee ratio and reducing the annual guarantee fee for a loan for small and medium enterprises.

"In the face of the worsening external economic environment, we need to help our enterprises by reducing their operating costs and enhancing our competitiveness so as to protect employment," said Tsang.

To preserve employment, Tsang pledged to continue with the strategy which helped Hong Kong tackle the 2008 financial tsunami. He argued that apart from stabilizing the employment market through the supportive measures for enterprises, the government should provide suitable employment support and training directly targeted for working population.

Tsang also proposed to take effective measures to care for people's livelihood, with the priority of education, health and social welfare.

"We shall continue to allocate resources to recurrent items relating to people's livelihood. We shall, as in the past, adopt fiscal stimulus measures to help those in need by providing them with appropriate services and facilities," Tsang said.

Besides, to ease the tax burden of middle class, Tsang proposed seven tax measures for the coming fiscal year, including raising the tax exemption allowance for tax payers.

In order to promote economic development, Tsang said Hong Kong must take advantage of our existing competitive edge. He continued that the city should "actively take forward" the 36 supporting measures announced by Vice Premier Li Keqiang during his visit to Hong Kong last August.

The continued liberalization of the Mainland economy has presented Hong Kong with an opportunity to further develop its economy, said Tsang, adding that Hong Kong should improve its market infrastructure, seek to enhance the market connectivity of the Mainland and the city, and increase its market capacity. Tsang also said that Hong Kong should further expand its linkage to the world, pursuing participation in multilateral and regional economic co-operation.

"I believe that we should take full advantage of our relationship with the Mainland while enhancing our international outlook. This should continue to be our way forward. It will further reinforce Hong Kong's position as a global economic, financial and commercial center," said Tsang.

Besides, Tsang also emphasized the importance of promoting four traditional pillar industries, namely trading and logistics, financial services, business and professional services, and tourism, and six emerging industries, including cultural and creative industries, medical services, education services, innovation and technology, environmental industries, and testing and certification services. (1 U.S. dollar = 7.76 HK dollars)