Hong Kong 10 Years Later
Hong Kong’s officialdom has been engaging in an orgy of self-congratulation to mark the 10th anniversary of the handover of the territory by the British government following 155 years of colonial rule. Chinese President Hu Jintao and the international media have been on hand to burnish the hubris.
For those who thought the territory would fall apart under Chinese sovereignty, there is much to celebrate. But for the vast majority of Hong Kong’s citizens who never believed any such thing, the question is whether the territory has made any progress in those 10 years. Second, how does that progress compare with that of its neighbors? Finally, there is the question of how much better off in economic and social terms Hong Kong might have been with something other than its “executive-led” government.
There are some serious doubts over claims that real per capita income has actually increased significantly since 1997. Overall growth in GDP is estimated at anything between 8% and 37% -- the headline number preferred by the government -- depending on which data and estimates of deflation are used. Meanwhile the population has risen by 8.4% and the workforce, due mainly to immigration from the mainland, by 14%. Thus average real income per worker may not have risen even without taking into account an increase in income inequality.
The overall per capita growth rate must be seen in the context of a period of stupendous growth in China, averaging above 10 percent annually for the entire period, and even faster growth in China’s foreign trade and two-way investment flows. Hong Kong’s growth is more in line with Taiwan’s, often seen as a rather sluggish economy nearing maturity than, say, with Korea, which has persistently performed strongly after rebounding from the Asian financial crisis of 1997-1998. But don’t expect Tsang and Co. to focus on these comparisons.
Next comes the question of income distribution. If, as the government data shows, the number of rich and poor have both expanded sharply while the numbers in the middle income groups have fallen, it can be assumed that the majority of people have benefited even less than the overall data shows. The numbers in the top three and bottom three income brackets have soared since 1995, with the biggest increases in those over HK$50,000 (US$6,400) a month and under HK$4,000.
Conversely those in the two middle income brackets of HK$10,000-20,000 – close to the median household income level – have soared. The international standard measure of income inequality, the Gini co-efficient, has risen to 0.533 from 0.518, far higher than comparable developed economies and heading for Latin American gap levels.
Some of this increase was a natural consequence of the shift of unskilled work to the mainland at the same time as highly-paid financial services were expanding. But some is attributable to tax concessions favoring upper-middle-income earners, and cutbacks in government spending on housing, health and welfare which have traditionally partly offset the crude income gap.
This is hardly something to be proud of. Even less so are the racist taxes imposed on a large low-income group – foreign domestic helpers, almost all Filipinas or Indonesian women – or legislation to outlaw the discrimination which oppresses so many of the low-income, brown-skinned minority groups. Patriotism has often morphed into Chinese chauvinism.
Account also needs to be taken of specific measures taken by the mainland to help Hong Kong – which should not need help from a much poorer motherland. First was the easing of mainland tourism, which has risen exponentially. Without it Hong Kong would have registered a huge deficit on its tourism account. As it is the deficit is quite small.
Then came the Closer Economic Partnership Arrangement (CEPA) which aimed to give Hong Kong preferential status in access to the mainland for some goods and service industries. Its practical impact has been small. However it has been potentially disastrous for Hong Kong in other ways. It has been used by Beijing, as well as by the Hong Kong government, to demonstrate Hong Kong’s reliance on the mainland. And it has created a precedent of providing mutual preferences to one fellow WTO member.
In the past Hong Kong, as a global trader, had always rejected notions of preference. A special deal with Beijing can only weaken its separate role in the WTO and its ability to claim separate status the next time China is hit with discriminatory practices. And while the Tsang team has been worshipping at the CEPA altar, Hong Kong has ignored its trade relationship with other major players in the region, most of which are busy discussing preferential arrangements of their own.
China’s biggest benefit to Hong Kong so far has been the decision to list many major state firms, including banks, in Hong Kong rather than at home or in foreign markets. Particularly over the past two years the benefits flowing to the legal, accounting, printing, publishing and allied sectors, as well as the financial sector itself, have been immense. They have put Hong Kong near the top of the international IPO league. Most recently Hong Kong has benefited from China allowing Yuan bond issues in Hong Kong. But for how much longer will these benefits exist?
More recently there has been a huge revival in listings in Shanghai. Although foreign investment in mainland stocks is still largely confined to Hong Kong listings, it can only be a matter of time before expansion of Qualified Foreign Institutional Investor (QFII) accounts on the mainland and a retreat in Shanghai valuations towards Hong Kong ones results in a shift of trading away from Hong Kong.
The SAR will continue for the foreseeable future to have superior standards of governance and there is also little prospect in the near future of the Yuan becoming freely convertible. But Hong Kong’s advantage is being eroded and the process is being speeded up by the failure of weak-willed authorities and a self-interested, government-controlled monopoly known as the HK Exchanges and Clearing to enforce its own rules on large state enterprises.
While Hong Kong’s financial sector has benefited dramatically from China in the short term, obsession with the mainland has resulted in the stock exchange failing to develop in other ways. Apart from a few Taiwan firms which have been forced offshore by local restrictions on mainland investment, Hong Kong has singularly failed to attract foreign listings, falling far behind Singapore, let alone London. Much the same applies to other potential markets whether index futures or carbon trading. The exchange, like the government, remains smug and parochial.
Meanwhile Hong Kong has failed to find its place in regional and global educational systems. It should attract students. In reality it continues to send huge numbers overseas while attracting few to its own schools and campuses as English standards have declined while Cantonese continues to dominate and Mandarin remains inadequate.
Likewise, too, while there are areas of excellence in medicine and a good and cheap standard of service for the majority, very high costs in the private sector have meant loss of opportunity in health care to Singapore, Sydney, Bangkok, even Manila.
Hong Kong also largely fails to admit, let alone address, pollution problems for fear of offending the mainland.
That there are greedy vested interests at work goes without saying, Hong Kong’s failure to shift priorities to focus on quality over quantity, on green space over concrete, public transport over private cars etc has been in stark contrast to what has been happening in Seoul, Singapore and Taipei – or even once benighted Bangkok – let alone in Europe.
In Hong Kong a mixture of ignorance, narrow self-interest and outright corruption has left the city trailing behind, regardless of its claims to be “Asia’s World City”. Indeed, the mantra of “no change” after 1997 has proven to be a dead weight. Some things needed to change – and have not. Yes, Hong Kong coped OK with the 1997 crisis and the SARS epidemic, but so did Singapore and Taiwan.
If Hong Kong really wants to be a city of regional and global importance it must do more than simply avoid disasters. As it is, the past 10 years have seen stability along with an increased tolerance of mediocrity and dominance by bureaucratic and local business elites that have neither the imagination nor the will for the kind of innovation need to keep Hong Kong an example to the mainland and a leader in Asia.