The Hong Kong economy has long been greatly influenced by external factors .Hong Kong was a manufacturing centre before China adopted the ‘Open Door Policy’, which was the most influential policy in the 20th century. Since then, Hong Kong industries started moving to the Mainland gradually due to the Mainland’s advantage in terms of land and manpower costs as well as and policy incentives. Meanwhile, the escalating competition among East Asian economies led Hong Kong companies to establish their manufacturing plants in Mainland China. Moreover, the energy crises in the 1970s hard-hit the economies in the West and Hong Kong. Therefore, the Hong Kong economy, along with some Western economies, had to undergo a structural transformation. For instance, London was transformed from a manufacturing centre to a financial and service centre, which set a precedent for Hong Kong.
Hong Kong’s economic structure was shifted from a manufacturing-based one to one thriving on finance, property and tourism, which are considered as the most profitable industries. The huge output from the financial and property sectors generated a significant amount of output by multiple effects and propelled Hong Kong’s prosperity. Indeed, over the past forty years, Hong Kong’s economy has in general booming, albeit several busts. However, not everyone in the society has benefited from these industries. The major beneficiaries belong to the social elite or the upper class. In the year of assessment 2010-11, those who paid an average salaries tax of HKD51604 or above only constituted 14.68% of the salaries tax payers. These 223240 people only amounted to 0.02% of the entire population 8 millions. In other words, only these people directly benefited from the economic boom. The marginal propensity to consume (MPC) of these people are lower than people with less income, which means more of their income would goes towards investment or saving rather than consumption.
Although economic fluctuations, also known as business cycles, are a normal phenomenon, the fluctuations in Hong Kong are frequent and intense, which, from a long-term perspective, is unhealthy and harmful to all industries in Hong Kong. Firms need time to grow and weather the next economic downturn. Short business cycles reduce the chances of developing a successful industry other than finance and property. A healthy economy should have smooth economic fluctuations rather than rapid economic expansions and contractions. The previous article “Money rich, asset poor？” illustrates that the financial and property sectors are heavily vulnerable to foreign cash flows, especially in Hong Kong, the freest economy.
Under such circumstances, the low-income groups suffer the most. Inflation erodes everyone’s revenue but the people who are at the bottom of the society suffer the most because they do not have a huge income to be eroded.
To build a healthy economy in Hong Kong, the government should support industries that can create jobs with relatively reasonable wages rather than those that solely uphold the role of financial centre.
Hong Kong has abundant human resources but natural resources, which is why labour wages can’t be improved. Hong Kong government should develop more proactive economic policies. One of the suggestions is to set up a quasi-governmental corporation. This company will invest in every potential asset around the world, especially commodities like oil and energy. Meanwhile, heavy industries also have to be invested; which will require a huge amount of labour and provide a relatively more reliable economic base than finance. These industries do not necessarily need to be based in Hong Kong; they can be located in reliable countries such as China. The initial fund will be provided from the government and be retrieved after 10 years. The company will run as a private firm with official background such as MTR and the Link. In this case, responsibility belongs to the firms ,not the government. However, some provision has to be established before privatizing the firms. For example; the proportion of Hong Kong employees must not be lower than 50 %, etc. And the role of the government is to build a good credibility in the initial stage.
Foreign investors are very likely to protest against the proposal. They may threaten to retreat funds from Hong Kong. However, since 2008, major economies like the US have been interfering the market. Another example is Temasek Holdings, which is one of the most successful government-owned funds and is the best precedent of the proposal.
In conclusion, our economy is not completely hopeless. There are certain ways for Hong Kong to develop new industries that benefit the entire society. However, if the internal strife of the society continues and the bureaucratic mindset of the administration remains unchanged, the outlook for Hong Kong would look grim. We have wasted 10 years bickering over political reform and we should not squander another 10 years on such a meaningless fight.
Written by Alex Cheung, 2o13 summer intern