ASIA: by Jeffry Babb News Weekly
Hong Kong: deflation and Big Brother
, July 27, 2002
Hong Kong was once the brightest jewel in Britain's empire - and it lasted far longer than most colonies, and prospered more, because the British tradition of good administration coupled with freedom of enterprise worked with the people of Hong Kong.
China is keen for the "one country, two systems" to work in Hong Kong, because China wants Taiwan to reunite with the Motherland and it intends holding Hong Kong up as an example. So should the people of Taiwan feel encouraged by what has happened in Hong Kong?Economic trouble
One would have to say no. Hong Kong is caught in deflationary spiral similar to Japan. Property, which was the basis of the bubble economy before Britain handed the Crown Colony back to China, has collapsed. Prices are going down - why buy something today, when it will be cheaper tomorrow?
Those who speculated that property could fall by 50 to 60 percent after Hong Kong was returned to China were proved right.
As it is, a large proportion of the middle class is technically bankrupt, because they have negative equity in their properties - in other words, the bank loans they have taken out to buy their property are worth more than the property itself - not a good feeling.
And feelings have a lot to do with the way Hong Kong operates. Hong Kong grew as an entrepot between China and the outside world. It has the rule of law and a system to enforce contracts. It gets things done efficiently. Now Shanghai is taking that role. While all the time proclaiming that they want Hong Kong to prosper, all the big projects and regional headquarters seem to be heading for Shanghai.
Sure, Hong Kong still has the highest number of Rolls Royces in the world per capita, and the number of millionaires actually went up in 2001. But according to a survey conducted by the City University of Hong Kong, some 28 per cent of people in Hong Kong live below the poverty line - more than double the number recorded in the mid-1990s.
A recent survey found that seven out of 10 professionals would like to leave Hong Kong. The jobless rate is at a record 7.4 per cent and likely to climb further as school leavers come onto the job market over the next few months.
Is the "one country, two systems" model doing so badly? After all, China still needs Hong Kong as a window to the world and overall, the city's 6.8 million people remain prosperous.
Essentially, it's the same as John Steinbeck's classic story, Of Mice and Men
. China is like Lenny, the giant who couldn't help breaking things. If he picked up a puppy, Lenny was sure to kill it. No matter how hard it tries, Beijing can't help but put its mark on the territory, now officially the Hong Kong Special Administrative Region (SAR).
The People's Liberation Army (PLA) is not much in evidence, but it is visible. When Beijing sought a ruler for the SAR, it appointed Tung Chee-hwa - an unpopular outsider, originally from Shanghai, whose main qualification for the job was that he was Beijing's man.
Tung recently appointed a Cabinet that would be "accountable to the people of Hong Kong." Exactly how they would be held accountable is not spelt out. At least the old professional public servants were impartial, and ruled with a disinterested British attitude.
The new Cabinet is responsible to no one except Tung - they are not elected, and they are not responsible to any body that is "elected" in the Western sense of the word.Next decade
Hong Kong probably has about 10 years to reinvent itself, before the mainland catches up. China is still the Wild West as far as the legal system is concerned, even though China is trying desperately to put a legal system in place that will support commercial agreements.
Hong Kong firms get things done - not always the case with mainland companies, with many in the state sector still burdened with large, unproductive work forces.
The recovery of the so-called "red chips" on the Hong Kong stock exchange is probably a way to go. The malfeasance in the United States is small beer to what goes on in the mainland every day, where companies often have three sets of books - one for the shareholders, one for the Government and the only one that's any good, one for the beneficial owners.
The floating of the Bank of China Hong Kong on the stock exchange is probably a sign of things to come. China needs not only capital, but also expertise. It seems likely that the whole Pearl River delta area, taking in Canton, Shezhen, Macao and Hong Kong will become one giant conurbation in years to come.
As it is, the Pearl River delta region is rapidly becoming one of the world's great manufacturing centres and it will need a capital - and that could be Hong Kong.