HK's 'deep-rooted' economic challenges
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Concluding the Third Session of the 11th National Congress, Premier Wen Jiabao mentioned problems and challenges he described as "deep-rooted" in Hong Kong. He amplified his thoughts and advised Hong Kong in a five point strategic overview that comprised 1) further development to preserve Hong Kong's status as international financial center, shipping and trade hub of the region, 2) boosting the service sector, 3) co-operation with the Pearl River Delta region, 4) improvement of people’s livelihoods while enhancing the education system and 5) maintaining the unity, prosperity, and stability of Hong Kong.
Premier Wen also urged Hong Kong people to "accommodate and collaborate". The phase echoes the harmonious society that the premier has vowed to establish in China. When he uttered his concerns on Hong Kong’s “deep-rooted” issues, he emphasized that it is the livelihood and well-being of the mainstream Hong Kong people, ranging from white-collar professionals in Central, to street hawkers in Mongkok, that he is concerned about.
For the past 13 years, the central government has granted continuous support via favorable policies and measures to aid Hong Kong after the city suffered a series of macro-disasters the 1997 financial crisis, IT bubbles, SARS and the 2008 financial tsunami. But the "privilege" of such support was deemed by the majority to be inaccessible to them. In at least one survey, Hong Kong scored the Highest on income inequality (Gini Coefficient) in 2007, among the world's most advanced economies.
According to a report by the Hong Kong Council of Social Service, the inequality of wealth distribution has worsened in the past decade. If all households are being classified into rich and poor groups, and their median incomes are compared for the past two decade, you will find the differences widening.
The median family incomes for the poor and rich group in 1989 were HK$5,000 and HK$13,000. The differences then enlarged to HK$10,000 versus HK$30,000 in 1999 and widened even further in 2009 to the gap between HK$9,000 versus HK$32,600, respectively.
The shocking result demonstrated a deteriorating environment for low-income families as they suffer declining household incomes while the high income groups are benefiting from even higher incomes.
Hong Kong is undergoing an economic transformation, which is one of the leading causes behind the income inequality. Our economy has gradually shifted towards service-oriented industries, which contributed 92 percent of the total GDP in 2008 to the economy. The finance and insurance sector alone grew from 12 percent to 16 percent 2004 to 2008 (33 percent growth). Jobs with low levels of educational attainment have diminishing GDP contributions; for example, manufacturing dropped from 3.6 percent to 2.5 percent (a 30 percent decline).
Premier Wen urged Hong Kong to further develop the trading, finance and transportation sector, but it is where victims suffered massive monetary losses from complex financial structured products, i.e., minibonds and other structured products. The series of resulting protests not only dampened the confidence of investors, but also has damaged the reputation of Hong Kong as an international financial center.
Moreover, not only is the financial sector troubled, but also we are seeing setbacks in other sectors as well.
Hong Kong once handle the largest number of containers in the world, but Singapore and Shanghai have already bypassed Hong Kong as the top and second biggest container transporting ports, while Shenzhen, operating at a much lower cost, has quickly caught up at fourth. The number 10 container pier has been planned for years, but the government will be able to commence construction only in 2012 and ready to operate in 2015, while our neighbors in the Pearl River Delta are building up multiple container ports to share the increasing demand.
Another source of challenges lies in escalating property prices. Rising property prices are as destructive as double taxation, suppressing business ideas and choking off social mobility. In the last two decades, Tokyo has demonstrated the massive damage caused by a ballooning housing bubble and its impact on a developed metropolis that led to suffering of its citizens.
As a free economy, the HKSAR government should not interfere with the property market. However, upholding a stabilized and fair environment for its citizens and maintaining a fair and open market-oriented economy is the duty of modern governments.
It is not uncommon in the late phase of capitalist development that major industries are dominated by a small number of large players inadvertently hamper the minority market participants, especially when the bigger players dominate so many aspects of the market and marketing.
A law has recently been passed to aid developers in seeking compulsory sale for redevelopment, at a time when a record sale of HK$88,000 per square feet was proudly announced, in a series of what turned out to be questionable deals.
We have floor numberings as the 68th and 88th Floors, but for suites actually located less than 50 floors from the ground. All of these maneuverings are happening at a time when government officials continue to claim they are constantly monitoring the housing market and the livelihood of the majority is being safeguarded.
However, poverty is a disease that reallocation of social resources alone cannot cure. The poverty rate of teenagers aged between 15 to 24 years old grew from 15.4 percent in 1999 to 20 percent in the first half of 2009. While the cause may relate to factors such as globalization and economic transformation, the government cannot simply reapply the social welfare formula. Neither should it allow the problems to grow. If the government does not deal with these issues property, the competitiveness and the cohesiveness of the community will wear out, further eroding the reputation of the city.
Hong Kong is at a crucial stage of economic transformation. The government needs to listen and accommodate the need and requirements at different levels to establish a harmonious society, for the community to be able to collaborate for the city to prosper and succeed – "accommodate and collaborate", as suggested by the Permier Wen.
Professor Wang Guanyi is a Visiting Professor at Asian International Financial Commentator at NOW Business Nesw.