Serving Hong Kong

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• Serving Hong Kongs Economic Life

Prof. Stephen Cheung Dean, School of
Business Hong Kong Baptist University
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Content

• Background
• Current economic situation
• Socio economics challenges
• Implications on public finance
• Regional economic cooperation

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Background

• Hong Kong has survived two major international
  financial crises in just one decade
• Asian Financial Crisis (1997-1999)
• Global Financial Tsunami (2007-2009)

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Background

• 1. Proof of resilience of the Hong Kong
  economy?
• or
• 2. Call for more immediate repositioning to
  adapt to the new challenges for HK?

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Current Economic Situation

• The economy has somehow recovered
• In 2009, GDP increased by 8.0 in 1st Quarter
  6.5 in 2nd Quarter. Annual growth rate 7.2.
• Unemployment has dropped to 4.2 (lowest since
  Jan 2009.)
• Chief Executive expects 2010 growth by 5-6
  (Policy Address)

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Socio-economic Challenges

• High income inequality sustained (Gini
  coefficient - 0.43 in 2009). UN reports No. 1
  unequal city in Asia (2008) among developed
  economies worldwide (2009) (2nd Singapore 3rd
  USA)
• Asset-bubble built up again (property prices
  restored to pre-97 level in some popular estates)
  
• Inflation imported (RMB revaluation) peg to
  depreciating US Dollar
• Competition from first and the rapidly growing
  2nd-tier cities in the Mainland

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UNDP Human Development Report 2009
Income Gap

HDI Rank Country 1992-2007
15 Spain 34.7
16 Denmark 24.7
17 Belgium 33
18 Italy 36
19 Liechtenstein ..
20 New Zealand 36.2
21 United Kingdom 36
22 Germany 28.3
23 Singapore 42.5
24 Hong Kong, China (SAR) 43.4
25 Greece 34.3
26 Korea (Republic of) 31.6
27 Israel 39.2

HDI Rank Country 1992-2007
1 Norway 25.8
2 Australia 35.2
3 Iceland ..
4 Canada 32.6
5 Ireland 34.3
6 Netherlands 30.9
7 Sweden 25
8 France 32.7
9 Switzerland 33.7
10 Japan 24.9
11 Luxembourg 30.8
12 Finland 26.9
13 United States 40.8
14 Austria 29.1
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Income Gap
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Income Gap

• No. 1 Hong Kong, Top 11 Countries With the
  Biggest Gaps Between Rich and Poor (UNDP)
• Gini score 43.4
• Share of income or expenditure ()
• Poorest 10 2.0Richest 10 34.9
• Ratio of income or expenditure, share of top 10
  to lowest 10 about 18 times

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Income Gap

• Renowned for its high concentration of
  Rolls-Royces, expensive real estate, and posh
  shops, the Chinese special administrative region
  has plenty of rich who enjoy showing off their
  wealth. However, Hong Kong also has one of the
  largest public housing sectors in the world, with
  about half the population living in
  government-supported or -subsidized housing
  estates. The city has no minimum wage - except
  for domestic helpers from the Philippines,
  Indonesia, and other countries.
• Business Week, October 16, 2009

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• Number of Chinese newspaper articles with these
  key words

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 10/2010
Disparity between the rich and the poor ???? 1546 1360 1127 2002 3042 3186 4567 3087 2908 5587
Housing prices ?? 18091 20329 19764 23320 23979 21914 30409 36965 36620 42288
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Income Gap

• Deep and increasing social tensions dividing HK
  society
• Cross-sector and inter-class conflict hampers the
  overall economic vitality
• Governance hindered difficult to introduce much
  needed policies
• gtAre we still as efficient, adaptive and
  resilient as we have used to be??

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Income Gap

• Developed economies high percentage of
  service-sector, finance capital market and
  technology/high value-adding industries.
• Wealth accumulation easier IF one has knowledge
  and/or capital
• Recent asset-bubbles amplify the situation
  (property prices surging restored to pre-1997
  level in some areas)

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Income Gap

• This also implies without capital, assets or
  sophisticated knowledge, wealth creation is very
  unlikely
• Unlike industrial/fast-growing period easier
  promotion, pay-rise, job-change
• Income gap and social inequality widened

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Income Gap

• Non-professional / low-skilled migrant
  communities most obvious
• Inter-generation poverty knowledge and capital
  gaps between children of the rich and the poor
  households are increasingly broadened

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• Number of Chinese newspaper articles with these
  key words

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 10/2010
Profiteers ?? 828 834 1253 1305 943 698 1123 1535 1497 1463
Hatred toward the business sector ?? 1 1 0 10 34 6 7 18 11 619
Hatred toward the rich ?? 9 91 517 512 578 759 738 666 965 1999
Inflated buildings ??? 1 0 0 1 2 5 32 56 312 921
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Hatred toward the Rich / Business?

• Yes, rising public skepticism, grievances and
  even confrontation against a few tycoons,
  business groups and sectors, particularly
  developers
• Hate Rich is NOT in HKs culture and mindset
  decades of pro-business and get-rich ethics
  developed
• Global Giants (e.g. Bill Gates and Warren Buffet)
  are respected not only for wealth and power, but
  more for their corporate social responsibilities
  and personal philanthropy

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Hatred toward the Rich / Business?

• Real problems
• oligopoly by some developers giant groups
• Taking huge profits, appears to be an obstacle to
  improve social justice, e.g. minimum wage,
  anti-trust, effective privacy protection,
  anti-discrimination etc.

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Hatred toward the Rich / Business?

• Asymmetrical power over consumers and even
  government manipulation of market price
• Changing HK values highly developed, HK people
  (esp. new generations) pursue goals of social
  justice, fair-play, consumer-rights, market
  transparency etc. as in other advanced societies

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• Number of Chinese newspaper articles with these
  key words

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 10/2010
Social enterprises ???? 163 173 164 255 348 611 2367 2090 1935 1750
Wealth comes before virtue ???? 59 66 56 88 97 113 169 110 98 187
Corporate social responsibility ?????? 35 98 205 622 1118 2512 4426 6751 4963 4347
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Corporate Social Responsibilities

• Business has a role to play in building a
  harmonious society
• These are joint or shared responsibilities of the
  government business in any developed societies
• Only responsible to the shareholders could be an
  excuse
• Tri-partite relation among NGOs, Govt, and
  business sector

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Consequences Social Tensions

• Income inequality occasional economic setbacks
  ? social tensions and discontents
• Problems severed with recent inflation and
  asset-bubble. Simple livelihood needs for
  grass-roots, youngsters and even lower-middle
  class become tougher
• Recent asset bubbles and the forthcoming
  inflation

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Policy Address

• The Government is making efforts to address the
  most pressing socio-economic issues within the
  current budgetary resources
• Right direction, new thinking - practical
  livelihood needs of majority of the population
  long-term needs of the economy better define the
  Governments economic principle
• Home Owners Scheme remain controversial, with HK
  public split in vested interests, but measures
  and innovation are still needed, e.g. My Home
  Scheme and Community Care Fund, etc
• More human-oriented, less social tension

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Policy Implications

• Immediate actions needed to resolve social
  tensions
• Re-assert the Governments primary economic roles
  as provider, facilitator and regulator' to
  ensure a fair and open level-playing field exists
• Deal with working poor/wide income inequality
• Care for the underprivileged groups

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Implications on Public Finance

• Roles of the Government
• Laissez-faire / non-intervention
• Market leads and government facilitates
• Big market and Small Government

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(No Transcript)
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• Number of Chinese newspaper articles with these
  key words

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 10/2010
International Finance Centre ?????? 3240 4393 6508 8132 9682 10600 12865 13401 21068 12580
Offshore Financial Centre for RMB ??????? 0 115 1183 296 158 84 186 335 468 1235
Marginalization ??? 1052 2458 3329 4440 7371 10943 8654 7644 8863 9382
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From Competition to Collaboration

• Hong Kong can work in collaboration with other
  financial centres of China and leverage our
  respective strengths
• Specifically, with our highly open and
  internationalized market, a well developed and
  highly governed regulatory regime as well as the
  rule of law, HK is set to enjoy a comparative
  advantage to attract international talent,
  capital, financial products and services
• Hong Kong can also be a testing ground for the
  internationalization of the RMB, and to become a
  market offering a broad range of RMB products and
  services

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From Isolation to Engagement

• Hong Kong can engage other financial centres in
  the Mainland by encouraging more exchange of
  financial products, capital and talent
• As the bridge head for Mainland enterprises, Hong
  Kong can serve as the preferred capital raising
  centre outside the Mainland, providing equity
  listing, bond issuance and international asset
  management services
• Hong Kong can engage the other financial centres
  of the Mainland in the areas of financial market
  infrastructure, information sharing, and
  regulatory co-operation to enhance the financial
  security of cross-border capital flows

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Zero-sum game or Win win situation

• The development of Shanghai as a financial centre
  in the Mainland is a reality
• Hong Kong stands to gain with the competitive
  advantages that we have built so far
• Hong Kong Government needs to re-steer its role
  differently to pave the way for HK to sustain its
  role as a international financial centre as China
  continues to mature and other of its mainland
  financial centres continue to develop

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• End
• Thank You!