Breaking into television programmes to announce the package, a grim-faced Tung Chee-hwa, Hong Kong's chief executive, said that the economic position was "more serious and far-reaching than we had anticipated". He said the economic downturn in the first quarter would be followed by a second quarter which gave no grounds for optimism.
"We are at a crucial stage," said Mr Tung before unveiling a series of measures described by his financial secretary, Sir Donald Tsang, as "special measures" for a "special situation".
As from today, all land sales in Hong Kong will be suspended until April next year, the first time the government has suspended such sales since 1953. The government is to make a HK$3.88bn (pounds 308m) rate rebate, provide additional credit guarantees to exporters and to provide increased funding to first time home buyers. Company earnings from Hong Kong dollar deposits will be exempt from profits tax, a move intended to support Hong Kong's US dollar peg.
Repeatedly questioned about whether the government can hold the peg in the face of devaluations throughout Asia, Mr Tung insisted that this was a primary objective. "If we cannot keep the linked rate, the consequences will be dire," he warned.
Stock markets - which also had to digest the implications of Japan's failure to announce any concrete banking reforms at the weekend's G7 meeting - gave the news of reforms in Hong Kong a lukewarm welcome.
Tina So, a Hong Kong-based investment manager, said: "This gives some argument for buying property stocks in the short term, but can't help in the longer run. The core problem isn't oversupply but falling demand because of high interest rates and increasing job insecurity."
In London, the blue-chip FTSE 100 share index closed down 35.7 points after regaining about half of the ground it had lost in its early morning slide. The performances of the other European bourses was also lacklustre, while early trading on Wall Street trading was firmer than many had expected.
At lunch-time, the Dow Jones was up 0.5 points at 8713.37.
The dollar rose against the yen in the wake of the disappointing G7 meeting, although the Japanese Nikkei index rose by a third of a percentage point to 15.309 on Monday.
Japanese bank shares were generally down amid persistent rumours that the Long-Term Credit Bank of Japan(LTCB) would be forced into a merger by its bad debt problem.
Yesterday's Yomiuri newspaper reported that LCTB was to merge with Daiwa and Dai-ichi Kangyo, a tie-up which would create the world's biggest bank. All three banks have denied the rumours of a merger between them.Reuse content