Monday, September 17, 2007

A Partial Glimpse into Hong Kong's Reality

Two news reports best illustrate the state of dichotomy Hong Kong is now in. On the one hand, loaded developers bid feverishly over a piece of land to an astronomically high price (by world standards), while on the other, one in five Hong Kong people (20 percent of the total population) are trapped in the lowest echelon of society, where a 2-person household has to struggle with a miserable HK$7,000 per month income.

It is not infrequent that we hear government officials beam on how euphoric Hong Kong’s economy has been since the dismal days of SARS in 2003, backed up by healthy statistics. Perhaps they have been telling the truth, at least partially. The big question is: where has the new found wealth gone and how has it been distributed?

Less than a week ago, we had this announcement from Hong Kong’s largest developer, Sun Hung Kai Properties: the company has raked in a net profit of HK$21.23 billion for the year ended June 30, 2006 and it plans to fork out a further HK$33 billion for investments in the Mainland, where it already committed HK$44 billion in funds.

The net profit figure, compared with the year 2002 when it recorded a HK$8.52 billion profit, reflects a growth over four years of 1.49 times. The disheartening news is that the company has been channeling most of its profits into the Mainland in the last few years, and thus has not even been helpful in creating more employment in the local construction industry, which has been contracting yearly as a GDP contributor since 2001. Sun Hung Kai Properties is already among the latecomers who have jumped on the China property bandwagon. Others before it include Cheung Kong (Holdings), Henderson Land and New World Development, who have all secured huge land banks in the Mainland, using their Hong Kong earned profits.

So, who has been responsible for stimulating growth in the local economy? A quick look at the export data would provide the answer. The total exports in the post-SARS years showed year-on-year growth as follows: 2004: +15.9 percent; 2005: +11.4 percent; 2006: +9.4 percent. And import and export trade contributed to more than 20 percent of Hong Kong’s GDP in each of 2003, 2004 and 2005. If not for the hard-working efforts of the small import/export traders and enterprises, Hong Kong’s economy would probably not been as buoyant. Of course, its buoyancy also undeniably owes greatly to the booming finance sector, thanks to China dishing out IPOs to the SAR. But those lucky enough to be employed in this sector are hardly more than just a handful, and they, together with senior executives of the oligopoly of conglomerates and senior civil servants, typically take most of the cream off the income pie.

Thus we have a situation where rent-seeking developers have in recent years created immense wealth, just as in the past decades, but have redirected the newly found riches (partly from cash-rich Mainlanders who buy properties in Hong Kong) into the Mainland for investing purpose, leaving little benefit for Hong Kong’s economy, while the economy has relied on finance services and exports for most of its growth.

Meanwhile, as the export industry, like the red-hot finance industry, is not labor-intensive and thus has not been able to benefit a wider sector of the working population. The retail industry, although also showing strong growth, typically employs only an unskilled (low-paid) but young group in the labor force, despite the rapidly aging population. (It comes as no surprise that those aged between 45 and 65 make up the biggest increase (34%) in the below-poverty line group over the last 5 years.) Besides, many retail businesses have had to struggle with daunting rent increases from their ravenous developer landlords and can hardly afford to be generous employers. Between 2001 and 2006, the real wage index only saw a dismal 0.6 percent growth.

The above may not be the full picture of what’s happening in Hong Kong’s economy, but it might help to provide a glimpse into reality as to why more people are becoming poorer as the economy registers blooming growth, and why the wealth gap keeps stretching.

Looking forward, with a GINI coefficient already at the same levels as in Latin America, there doesn’t appear to be any silver lining…….

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