How About 'Occupy Hong Kong?'
|Our Correspondent||Oct 15, 2011|
Could the Occupy Wall Street movement take root in Hong Kong? It may seem improbable that resentment at a symbol of capitalism could flourish in this citadel of money-making. Unlike the US, unemployment has been falling, a minimum wage has finally been introduced after years of resistance, and there is no residue of the 2008 banking crisis to spur resentment at bailouts of fat cats.
Nonetheless, Hong Kong does share one important similarity with the legions of aggrieved average Americans: standards of living for the majority have been static for years despite apparent constant gains in the overall economy. The income gap has also widened steadily and is now worse in Hong Kong than in any developed economy – and in the Latin American league of inequality.
In Hong Kong resentment is more focused on property developers and the government (which controls land supply) than the bankers. But it is not beyond belief that if the global economy declines in 2012 and unemployment rises in Hong Kong there could be the mass demonstrations which occurred in 2003 and contributed to the ouster of the Chief Executive Tung Chee-hwa by Beijing.
The incumbent since then, Donald Tsang, is sure to get to the end of his term which expires next year. But his final policy address to the Legislative Council this week showed that the government has scant idea of how to deal with a problem that it keeps admitting is worrying. Meanwhile it remains wedded to reliance on the property sector for revenue despite that sector’s role in increasing the income inequality. Tsang has successively been financial secretary, chief secretary and chief executive for a total of 16 years but despite promises to make the revenue system broader, fairer and more stable has merely tinkered with it.
Tsang’s approach to poverty was again simply to offer a few minor concessions. Those over 65 will get cheap fares on trains, ferries and buses, and the over-70s and other welfare recipients get a one-off handout, as will public housing tenants. But this is small stuff particularly when set against the macro data. The latter shows that although the economy has supposedly expanded by 55 percent since 1997 and wages and salary income by 31 percent, real wages have risen by just 11 percent in 13 years. Such increasing income gaps have been common to most developed countries but Hong Kong is an extreme case, which appears to have a number of causes. These include the influx both of low-skill mainlanders and Southeast Asian domestic helpers which have depressed wage levels for the unskilled; the high profits of monopolies and oligopolies, most of which are not re-invested locally; the determination of the government to spend on capital works of dubious economic benefit rather than on income transfers to help the poor; and the property sector.
After spending much of the previous decade trying to prop up prices in the interests of its own revenues and those of developers with big land banks it has been forced by public opinion to reverse itself. It is restoring the Home Ownership Scheme, which provides for sale housing at partly subsidized price to lower middle income groups. This had been abolished in 22 to please private developers. And it is promising to increase the supply of land for housing after years of deliberately restricting it. The history shows that the government takes a relaxed attitude to steep rises in property prices, as has occurred over the past 18 months, then promises to halt it public opinion demands action. But if prices fall significantly, another policy reversal will be on the cards to stabilize them at a level which rewards existing home owners but still keeps flats unaffordable to many. As it is, even with low interest rates the mortgage to income ratio for the average household at current price levels is 47 percent.
The income imbalance is further exacerbated by two other property-related factors. Although the government continues to build public rental housing for low income groups, the supply is inadequate and often in locations far from employment. Public rental housing was once 45 percent of the housing stock but is now just 28 percent. The other is the amount of unoccupied housing – more than 200,000 units of 2.6 million or about 9 percent of total supply. Holding these units off either the sale or rental markets not only pushes up prices and worsens the wealth and income gaps but is itself evidence of the extent of the wealth gap. There is a very significant number of people who not only can afford to own several flats but do not even need to rent them out. As senior bureaucrats are known to be among the ranks of owners of vacant flats it is unlikely that the issue of empty housing will be addressed by taxing assumed rather than actual rent.
There are other ingredients in the income divide. One is that lower income groups have mostly saved through bank deposits, and more recently the Mandatory Provident Fund. But real interest rates on banks deposits have been at or negative for most of the past 30 years and the MPF has a high cost structure and has been through a period of volatile equity markets. Personal thrift has thus been penalized meanwhile the government and corporations have amassed huge surpluses. It is no surprise then that the older generation who built Hong Kong with their sweat back in the hard days of the 1960s and 1970s now face old age in penury and have to rely increasingly on grudgingly given handouts from the government. It is mainly the middle and upper income groups who have invested in stocks whose value, and dividends, have generally well outstripped inflation.
There is also a generational gap. The middle classes who bought their homes two or three decades ago are now sitting very comfortably but a younger generation brought up with more education and higher expectations now finds itself struggling to get onto the first rung of the property ladder. In turn that depresses the fertility rate – Hong Kong’s permanent residents have about the lowest in the world. It also increases demand for domestic helpers because it is impossible for an average single income household to contemplate home ownership. That in turn depressed unskilled wages.
Tsang’s speech showed a desire to mitigate some of Hong Kong income gap and housing problems. But his laundry list of mostly minor measures was a classic of failure to even consider fundamental issues, the root causes and linkages of the problems that Hong Kong faces. As with its failures to tackle air pollution, caution is the product of a mix of complaisance and being beholden to vested interests.