No Easy Fix for Hong Kong's Economy
|Nov 5, 2008|
Craig Stephen paints the picture most clearly by these passages in his MarketWatch article:-
“The problem is, of course, that Hong Kong has all its eggs in a property and finance basket, and everyone remembers how painful the asset down-cycle can be. Already retailers report October sales fell by up to 30% over a year earlier.
Hong Kong's rich list tells its own story. Here the tycoons come from a small tight knit group, and while their absolute wealth may shift by a few billion dollars year by year, the places hardly change and newcomers are almost unheard of.
The numbers are also noticeably bigger than those in China, led by Hutchison Whampoa chief Li Ka-shing, whose wealth was measured at $32 billion (US) at the beginning of 2008. Lee Shau-kee of Henderson Land had $23 billion (US), and the Kwok brothers at Sun Hung Kai Properties share $24 billion (US).
This might not appear intuitive, given they largely earn their money from a pool of 7 million people in Hong Kong rather than a billion over on the mainland. But rather than being prodigiously smart, they are kingpins of the best businesses of all – running monopolies and duopolies across property, retailing and ports in Hong Kong.
This state of affairs is kept intact by a government that has signed up to this status quo of being dependent on property revenues and high asset prices. Hong Kong civil servants are some of the best paid in the world.
For anyone wanting to live or do business in Hong Kong, they must be prepared to pay high prices for the privilege and live in matchbox-sized flats. This likely explains why one expat recently bemoaned to me the drop in living standards in moving his family back to Hong Kong from Shanghai.”
In short, Hong Kong’s economy and wealth is deeply concentrated in the hands of a few families who have thrived on land and utilities monopoly while the government plays their great protector by keeping land prices sky high through controlling supply. This skewed system has been allowed to perpetuate so that commercial rents (especially those for shopping malls and office buildings owned by the cartel) tend to shoot up in good times and decline very little in bad times, thus killing off entrepreneurs by batches in every turn, and residential prices and rents are always barely affordable for a lot of working people. Extortionate commercial rents invariably get passed on to consumers and make goods and services inordinately expensive. If you belong to the home-owning class, you may feel a little bit better off than those who don’t in the good times, but the dear price you pay is the massive invisible tax (for which you get absolutely nothing in return from government) – the large chunk of land cost – plus the developer’s abnormal profit, both hidden in the property price.
Against such a backdrop, who can argue with the columnist’s conclusion that without change, it is more than likely that more and more Hong Kong people and businesses will opt to migrate to north of the border in search of opportunities, rather than “just making old tycoons richer”?
And ironically that crucial change, when it finally comes, will not be the result of any brilliant notion from the Task Force, but rather will come in the form of a merger with Shenzhen, either of the ruling class’ own volition or through coaxing by Beijing. It is probably only then that there will be a chance to break the current oligarchic status quo. Until then, no Task Force is going to be effective in bringing about beneficial change to Hong Kong’s economy – beneficial to ordinary Hong Kong folks, that is – in bad times or good. Of course, neither is there guarantee that the change will not lead to the formation of another whole new oligarchy – one involving mainland cadres and nouveaux riches.
In the meantime, ordinary folks in Hong Kong are beginning to feel the searing pain inflicted by the global financial tsunami – Suicide Prevention Services are getting more calls for help and an increasing number of couples seek divorce under financial stress. It makes one wonder if the Task Force on Economic Challenges should not be replaced by a Task Force on Survival Challenges, with panel members coming from the NGO and social welfare sector. At least such a Task Force could be expected to provide concrete assistance to the needy and who knows, might even help Donald Tsang’s popularity rating.
Thomas Crampton's interview with David Roche of Independent Strategy: Bleak Outlook for Asia