Bangkok--12 Oct--Hong Kong Hong Kong's chief executive, Donald Tsang, demonstrated his strong understanding of the territory's key economic strengths in his first policy address since re-election, but did not address the government's narrow revenue base, according to Standard & Poor's Ratings Services analysts. "By continuing to focus on economic integration with the mainland, Mr. Tsang increases the likelihood that the Hong Kong economy will continue to draw strength from China's growth potential," said Standard & Poor's Managing Director of Government and Corporate Ratings Asia, Ping Chew. "To retain its position as China's premier financial and business services city, Hong Kong must maintain its market-oriented, rule-based, and transparent business approach." Mr. Chew said that successfully balancing these two aspects of Hong Kong's relationship with the mainland should help keep economic growth at a fast clip of about 5% despite Hong Kong's already high income levels. "China's booming economy is playing a big role in pushing Hong Kong's growth," said Standard & Poor's credit analyst Kim Eng Tan. "Private consumption, a key component of the Hong Kong economy, has also accelerated this year. However, structural weaknesses persist in Hong Kong's credit fundamentals." Mr. Tan said that the large fluctuations in fiscal revenue over a business cycle, which lead to significant deficits in an economic slowdown, are a vulnerable point in Hong Kong's sovereign credit factors. The proposed cuts in income tax could increase revenue volatility slightly. "Hong Kong's strong fiscal reserves provide a comfortable cushion for most shocks to public finance," said Mr. Tan. "A more solid foundation for the credit ratings on Hong Kong is possible only when the government is able to significantly increase the stability of its revenue stream. "Successful implementation of measures to stabilize the government's revenue should place Hong Kong on a sounder fiscal footing and provide even stronger support for the high investment-grade sovereign ratings." Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research, and data. With approximately 8,500 employees, including wholly owned affiliates, located in 21 countries, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit www.standardandpoors.com. Media Contact: Marc Eiger, New York (212) 438-1280 [email protected] Analyst Contacts: Ping Chew, Singapore (65) 6239-6345 KimEng Tan, Singapore (65) 6239-6350