Land and the Ruling Class in Hong Kong

On July 2 the Chinese edition of "Land and the Ruling Class in Hong Kong" by Alice Poon, a regular contributor and blogger for Asia Sentinel, was launched by Enrich Publishing and Hong Kong Economic Journal to considerable success. In 2007, the book was selected by Canadian Book Review Annual as "Editor's Choice" under the "Scholarly" category. The Chinese edition, titled "地產霸權" is enjoying brisk sales and widespread positive reception. The fourth print run of the Chinese-language edition in little more than a month is being sold in most Hong Kong bookstores. We are pleased to present an excerpt from the English-language edition:

"Conglomerates under the control of the (the oligarchic families) have a stranglehold on some of Hong Kong's economic arteries, namely property, utilities, public bus service and food retail. The rise to power of these economic lords owes a lot to a government that adopts a laissez-faire approach where it so suits the economic powerhouses and at the same time actively protects their interests.

In general, these groups have all been fattened on owning land – the single most valuable natural resource in Hong Kong. Their unrivalled prosperity is in part a byproduct of the 50 hectare-a-year land supply ceiling imposed on the Hong Kong British government by the Sino-British Joint Declaration signed in 1984, which caused property prices to skyrocket during the 1985-1997 period. This special factor apart, the groups have always had government on their side, whether under British or Chinese sovereignty, as government itself, being the sole supplier of land in Hong Kong, has a vested interest in the property sector through the receipt of revenue from land sales. This has led some academics to criticize the collusive relationship between government and the developers.

It would be fair to say that Chris Patten's government did perceive trouble coming from a property bubble being formed in 1994. It also reacted by attempting to dampen the flaming hot market with counter-speculation measures. Unfortunately, it then became too embroiled in the constitutional squabble with the Chinese side of the Joint Liaison Group to have time or attention left for the property market. Those measures never had a chance of success as they were implemented with half-hearted care. 

In the post-handover era, the SAR government started with a bang in the form of a high-profile policy to target housing supply at 85,000 flats a year, with an ambitious target for home ownership to reach 70 per cent by the year 2007 (then-Chief Executive Tung Chee-Hwa's first policy address on 8th October 1997). In view of the sky-high property prices that were prevalent in the pre-handover period and the public's complaints about the non-affordability of homes, Tung's policy would have been the right cure for the overheated property market, had the timing of its introduction not overlapped the onslaught of the Asian financial crisis. 

As things turned out, the bang ended in a whimper when the property market bubble finally burst in late 1997, triggered by the financial crisis. Since then, all fingers pointed at Tung and he was blamed for everything that was connected with the aftermath of the property carnage, like homeowners being caught in the negative equity trap, rising personal and corporate bankruptcies, high unemployment and a rotting economy. As much as he could not shirk responsibility for failing to admit poor judgment and making prompt corrections to his declared policy (i.e. for lacking political wisdom), that policy was hardly the true cause of the bubble burst. It was not the direct trigger, either. The trigger was soaring interest rates brought on by the Monetary Authority in defense of the dollar peg in late 1997, as global hedge funds launched a simultaneous attack on the Hong Kong dollar currency and the stock market, causing widespread panic and sharp price volatility in financial markets. 

The mayhem later spread to the over-inflated property market like a contagious disease. Like all other bubbles, this one was destined to meet with its inevitable violent end, regardless of whether Tung came up with his policy or not. The laws of gravity always take hold at the end of all bubble cycles. Tung and his policy were merely a steam-releasing valve for property speculators and owners to vent their anger over hefty losses from the carnage.

Since reneging on that policy, government became disoriented amidst growing complaints from disgruntled homeowners who had more than 60 per cent of their properties' value shaved off in many cases over the past five and a half years. In an effort to save the battered property market, the government announced a nine-point plan in November 2002 that placed a stress on curbing future flat supplies, with the professed aim of restoring confidence to the ravaged property market. But alas, that plan paradoxically shattered the last ounce of the public's confidence, as it was considered one that favored the developer conglomerates and was of little help to the besieged middle class. 

By placing a one-year moratorium on land sales, government did a disservice to smaller property players with small land banks, who, without government intervention, would have been able to boost their land banks at cheaper cost in the current depressed market. This measure, along with planned railway land supply cuts, abandonment of the subsidized home ownership scheme and elimination of anti-speculation rules, definitely won applause from the developer conglomerates. 

The plan at least provided a temporary window for the wealthy developers to unload their inventories and get their cash back. But it was likely to create more negative-equity homeowners as some potential home buyers would be tempted to enter the market prematurely due to government's coaxing act. As well, such uncalled for intervention would only cause further delays to the market finding a natural bottom and staging a true recovery.  

Through active market intervention with an aim to arrest the continuous price slide, all the government managed to do was contradict its own vow to bring Hong Kong's prices and rents down to more competitive levels relative to her neighbors in the region. Even worse, the government created an irrefutable impression that its act was pro-developer.

Against a backdrop of a less-than-level playing field in the local business arena and of consumers being exploited due to conglomerates exerting control over subsistence-linked markets, the educated middle class of Hong Kong, has been strangely reticent about the growing social injustice and the gaping divide that separates the rich from the poor. 

People in Hong Kong are dangerously apathetic about such a phenomenon, all brought about by the unregulated abuse by a few entrenched mega powerhouses of dominating market position in economic sectors affecting the everyday lives of Hong Kong society. 

One exception is leading corporate and economic governance commentator David Webb, who has been one strong advocate for setting up anti-trust or competition laws to deal with anti-competitive behavior in the marketplace, especially in sectors where there are no statutory licensing and inspection provisions. Unchecked, the large groups will be able to use their economic power to influence public policy, advance the interests of their associates and/or penalize others, undermine the position of rivals and deal with their employees/subordinates in a high-handed manner.

Adding to the problem is that Hong Kong has a government that is pro-business rather than pro-market, as observed by Webb in his article entitled "Hong Kong Needs a Competition Law". He was right in saying that "Efficient free markets can only be achieved if prompt and predictable intervention occurs when competitive forces have disappeared. Sometimes Adam Smith's invisible hand is simply not there." 

While commending government for gradually dismantling the banking and telecom cartels, Webb's article pointed out that powerful local tycoons who controlled many other sectors were enjoying a laissez-faire public policy and lashed at the lack of regulation, permitting a system of entrenched cartels, impeding economic efficiency.

In allowing anti-competitive behavior to thrive in the business sector, our society is already witnessing a host of social ills, ranging from workers being laid off as a result of mega corporate mergers, to smaller enterprises being elbowed out due to high rents and fees charged by developer landlords, to consumers being robbed of choices and forced to pay unreasonably high prices for basic necessities, to a polarizing gap between the rich and the poor.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Protected by WP Anti Spam