Serving Hong Kong’s Economic Life

1. Serving Hong Kong’s Economic Life Prof. Stephen Cheung Dean, School of Business Hong Kong Baptist University

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

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

4. 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?

5. 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)

6. 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

7. UNDP Human Development Report 2009 Income Gap

8. Income Gap

9. 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

10. 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 publichousing 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

11. Number of Chinese newspaper articles with these key words

12. 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 =>Are we still as efficient, adaptive and resilient as we have used to be??

13. 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)

14. 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

15. 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

16. Number of Chinese newspaper articles with these key words

17. ‘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 HK’s 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

18. ‘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.

19. ‘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. asin other advanced societies

20. Number of Chinese newspaper articles with these key words

21. 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

22. 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

23. 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 Government’s 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

24. Policy Implications Immediate actions needed to resolve social tensions Re-assert the Government’s 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

25. Implications on Public Finance • Roles of the Government • ‘Laissez-faire’ / ‘non-intervention’ • Market leads and government facilitates • Big market and Small Government

27. Number of Chinese newspaper articles with these key words

28. 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

29. 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

30. 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

31. End • Thank You!