Hong Kong sees 2-4 percent growth as 'new normal', no change to dollar peg

HONG KONG (Reuters) - Hong Kong is looking at a "new normal" economic growth rate of 2-4 percent, about half the pace at which it grew in 2011, as its export-dependent economy grapples with a slowdown in China and elsewhere, Financial Secretary John Tsang told Reuters.

The former British colony is facing huge challenges at a time when its retail, tourism and export sectors are slowing and China's economy is heading for its weakest growth in 25 years.

"We are looking at a new normal, at the current level, at about 2-4 percent. That is not our normal growth in the past. We've had double digits as well," Tsang said on Wednesday. "As we get bigger...our growth rate will naturally reduce."

Hong Kong's economy grew 2.8 percent in the second quarter this year, far below the heady rates of nearly 8 percent seen in the first quarter of 2011. The government forecasts growth for 2015 at between 2-3 percent, although some investment banks are less optimistic.

Trade has been the main pillar of support for the local economy, contributing to more than a quarter of the city's GDP over the past three decades, but Hong Kong is now looking at other sources of growth such as domestic consumption.

"I have been making a lot of fiscal concessions...and that basically puts more money in people's hands so they consume more and that on average has contributed 1 percent of growth to GDP," said Tsang, who has held his current role since July 2007.

PEG TO STAY

The Hong Kong dollar peg, in place since 1983, has come under strain in recent weeks due to renewed demand for the local currency in the wake of China's yuan devaluation, forcing the city's central bank to intervene to defend the peg.

While some economists have suggested that Hong Kong could consider pegging its currency to the Chinese renminbi or even a basket of currencies, Tsang said the current monetary policy framework was appropriate.

"If people think that managing a link with one currency is complicated enough, try managing it with a whole basket of currencies," he said.

There has been speculation that Tsang could run for Hong Kong's top post in elections in 2017.

According to opinion polls, the fencing-enthusiast is more popular than Hong Kong leader Leung Chun-ying. He recently endeared himself to the public by appearing at a soccer match and praising the local team in his blog.

Asked, however, if he would join the leadership race, Tsang said he "would not consider it at all".

With the recent slide in stock prices also threatening to hurt the city's property market, one of the world's most expensive, Tsang reiterated the government will watch prices carefully and revise policy when necessary.

Hong Kong's role as a premier offshore yuan hub will evolve as Beijing allows greater access to foreign investors, he said.

"We hope to be the London in the euro-dollar sense as we have been working very hard to build the infrastructure here."

(Additional reporting by Lisa Jucca and James Pomfret; Editing by Jacqueline Wong)