Serving Hong Kongs Economic Life Prof Stephen Cheung

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

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

Background Hong Kong has survived two major international financial crises in just one decade: n n 3 Asian Financial Crisis (1997 -1999) Global Financial Tsunami (20072009)

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? 4

Current Economic Situation The economy has somehow recovered… 5 • In 2009, GDP increased by 8. 0% in 1 st Quarter & 6. 5% in 2 nd 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)

Socio-economic Challenges • • 6 High income inequality sustained (Gini coefficient - 0. 43 in 2009). UN reports: No. 1 unequal city in Asia (2008) & among developed economies worldwide (2009) (2 nd: Singapore; 3 rd: 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 2 nd-tier cities in the Mainland

Income Gap UNDP Human Development Report 2009 HDI Rank Country 25. 8 15 Spain 34. 7 35. 2 16 Denmark 24. 7 Iceland . . 17 Belgium 33 4 Canada 32. 6 18 Italy 36 5 Ireland 34. 3 19 Liechtenstein . . 6 Netherlands 30. 9 20 New Zealand 36. 2 7 Sweden 21 United Kingdom 8 France 32. 7 22 Germany 28. 3 9 Switzerland 33. 7 23 Singapore 42. 5 10 Japan 24. 9 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 2 Australia 3 11 Luxembourg 25 36 30. 8 12 Finland 26. 9 13 United States 40. 8 Austria 29. 1 7 14 1992 -2007

Income Gap Median household income $18 500 $18 000 $17 500 $17 000 $16 500 $16 000 $15 500 $15 000 1998 8 2003 2008

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. 0 Richest 10%: 34. 9 Ratio of income or expenditure, share of top 10% to lowest 10% : about 18 times 9

Income Gap 10 “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. ”

Number of Chinese newspaper articles with these key Year words 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Disparity between the rich and the poor 貧富懸殊 Housing prices 樓價 1546 1360 1127 2002 3041 3184 4565 3085 2902 6535 18091 20329 19764 23320 23979 21914 30409 36965 36581 51395

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? ? 12

Income Gap n n n 13 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)

Income Gap n n n 14 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

Income Gap • • 15 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

Number of Chinese newspaper articles with these key Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 words Profiteers 奸商 Hatred toward the business sector 仇商 2010 828 834 1253 1305 943 698 1123 1535 1483 1788 1 1 0 10 34 6 7 18 11 772 Hatred toward the rich 仇富 9 91 517 512 578 759 738 666 961 2539 Inflated buildings 發水樓 1 0 0 1 2 5 32 56 312 1425

‘Hatred toward the Rich / Business’? n n n 17 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

‘Hatred toward the Rich / Business’? Real problems: • • 18 ‘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.

‘Hatred toward the Rich / Business’? • • 19 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, consumerrights, market transparency etc. as in other advanced societies

Year Number of Chinese newspaper articles with these key 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 words Social enterprises 社會企業 Wealth comes before virtue 發財立品 Corporate social responsibility 企業社會責任 163 172 163 252 345 608 2363 2087 1933 2180 59 66 56 88 97 113 169 110 98 223 35 98 205 621 1118 2512 4426 6750 4918 5468

Corporate Social Responsibilities • • 21 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

Consequences: Social Tensions • • • 22 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 lowermiddle class become tougher Recent asset bubbles and the forthcoming inflation

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 23

Policy Implications Immediate actions needed to resolve social tensions • • 24 • Re-assert the Government’s primary economic roles as ‘provider’, ‘facilitator’ and ‘regulator' to ensure a fair and open levelplaying field exists Deal with ‘working poor’/wide income inequality Care for the underprivileged groups

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

Number of Chinese newspaper articles with these key Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 words International Finance Centre 2010 國際金融中心 Offshore Financial Centre for RMB 離岸人民幣中心 3240 4393 6508 8132 9681 10600 12863 13397 20942 15772 0 115 1183 296 158 84 186 335 466 1539 Marginalization 邊緣化 1052 2458 3329 4440 7371 10943 8654 7644 8819 11393

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

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 cooperation to enhance the financial security of crossborder capital flows

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

End Thank You! 31