Hong Kong only successful when acting as China’s gateway

Sunday, 5th October 2014 16:30 HKT

This article has for the past few days been doing the rounds on mainland social media, which aims to distract attention away from democracy and onto the issue of Hong Kong’s economy. This author relies on more academic arguments, unlike the article “Who owns Hong Kong?”, a crude emotive piece which captured and stirred mainland sentiment, especially the resentment felt towards the special treatment received by Hong Kongers. This resentment wasn’t being captured in mainstream media, until the article’s translation was published on this site, later picked up by journalists and Foreign Policy magazine.

This article’s analysis on Hong Kong is stripped of nationalistic rhetoric, rather taking Hong Kong’s history and economic development as the reason for its present troubles. This calmer approach has ensured it avoids mainland censorship, unlike “Who owns China?”, which was blocked before and during the sensitive National Day holiday. Intriguingly, the article is supposedly written by an unnamed member of Hong Kong’s Legislative Council (Legco), which hasn’t been verified. This seems unlikely as the style of writing and content suggest it was more likely penned by a mainland author. Especially since the arguments presented fit neatly with the government’s narrative on China’s economic development with Chinese characteristics. Almost like a Hong Kong ‘add-on’ to Deng Xiaoping’s policy of opening up and reform, the article states that Hong Kong’s success is due to it’s role as a gateway to the rising China market.

Despite the motives of the author, and the fact that opposing views are hard to find in mainland media, translation of this article is important for Western readers because:-

1.) It provides an alternative narrative to the British centric version of Hong Kong’s rise and fall in economic fortunes.

2.) It shows how economics is used to justify Chinese policy.

3.) It reveals the underlying controlled narrative that feeds into nationalistic articles that tap mainland resentment towards Hong Kong.

4.) It highlights Hong Kong’s current economic weaknesses, which Hong Kong should face up to if it wishes to maintain it’s current position as the leading economical and financial centre in Asia.

—–

A member of Hong Kong’s Legco, who wishes to remain anonymous, provides deeper analysis on Hong Kong’s problems. The articles draws upon regional and economic connections, Hong Kong economic reality, and analyse how Hong Kong can develop according to its strengths. Yet this Legco member fears that even if they could present the arguments better, they cannot change the tide of events, and arrest Hong Kong’s gradual decline.

Hong Kong’s current problems are due to the four local tycoon families, such as Li Kashing, who manipulate local government policy and monopolise land supply. Until now, only 10% of Hong Kong’s land has been used for construction, which has caused the current today’s high prices. The knock-on effect is a rise in production costs which has meant a lot of agriculture and industry closing down for good, leaving just the service sectors. But many sectors such as retail and hotels are also controlled by Hong Kong’s wealthy tycoon families, earning Hong Kong the the moniker ‘The Li familiy’s city’. So the benefits of economic freedoms and given to Hong Kong by the central government, have in fact been been taken by the tycoons, leaving the common people to deal with the crowded conditions and high commodity prices. Thus the middle and lower income groups that make up 80% of Hong Kong’s population, vent their frustrations on the Hong Kong and central governments.

“It’s the economy stupid!” said Bill Clinton during the 1992 presidential election campaign. Well that’s exactly where one should start from when aiming to solve Hong Kong’s problems.

When searching for the reasons of Hong Kong’s decline, one should first analyse the reasons behind Hong Kong’s rise. There are many opinions from many quarters, but this committee member feels the most probable reason is due to Hong Kong’s role as a gateway for trade between China and foreign markets. This is can be illustrated by considering the periods when Hong Kong’s economy developed quickest. From 1840 to the Korean war over a century later, Hong Kong’s development was by no means eye-catching. Why? Because during that period Western countries could freely trade with China. With no need to pass through British controlled Hong Kong, Hong Kong’s main function was that of a naval port, not a commercial centre.

After the Korean war, China closed its doors to the outside world. But it wasn’t a problem when China switched to a socialist economy, as it could still rely on the USSR to supply capital and technology. It was only when China-USSR relations soured, and these import channels dried up, that China was forced to turn to the West. In the 1970’s China made a push to modernise its industry and to do so, needed to introduce foreign production technology. The problem was the incompatibility between China’s and the West’s legal and business practices systems, which meant it was not possible at the time for China to directly import foreign capital and technology. Thus it’s at this moment that Hong Kong became useful as a go-between. Firstly because Hong Kong had maintained contact with the mainland after the Korean war. And secondly because under British rule, Hong Kong businesses were familiar with Western law and trading systems.

In a similar fashion, cross-straits relations between China and Taiwan began to improve in the 1980’s, but due to restrictions at the time, most goods and people would have to transit via Hong Kong. With this surge in through-trade business, Hong Kong developed into a regional transportation hub and financial centre. Other competing centres such as Singapore, Taipei and Kuala Lumpur were left behind, as they didn’t have the Chinese mainland market behind them.

In the 1990’s, especially after the return to mainland China, many Hong Kong people are quick to blame the relative economic decline on the incompetence of the special administration government, seeing it as inferior to the previous British colonial administration. Actually this argument doesn’t hold. The real reason is since then, China has developed more open and direct relations with the West and Taiwan, so who needs to go via Hong Kong for mainland business?

However we are by no means saying that the lack of through trade spells the end Hong Kong. Hong Kong businesses just need to adapt and find a new role in the new economy, in the same way the Fuji filmmaker company adapted to the switch to digital. So the question remains, how can Hong Kong emulate Fuji, and avoid a similar fate as Kodak?

Hong Kong must develop local industries that can drive its economy. This won’t include low value industries, which where developed and then killed off by Li Kashing. Having made his first fortune in the plastics business, he then moved onto property investment, where he really made his fortune. And by controlling the land and forcing up rents, it then made it impossible for labour intensive industries to turn a profit. Of course as Hong Kong got richer, there was also an industry trend of moving up the value chain which meant only hi-tech companies could survive. The result left Hong Kong with no choice but to seek growth in the tertiary service sector.

The second reason for Hong Kong’s industrial decline was the migration of industry, chasing lower land and labour costs, to the mainland. Even the local film industry as early as the 1990’s had followed Hong Kong business to the mainland. Whilst the stars ate still Hong Kongers, most of their film shooting is on the mainland. So what has Hong Kong’s economic development got to do with them?

Thirdly, any target industry must be able to absorb Hong Kong’s large labour force, which isn’t the case at the moment. This committee member is of course referring to real estate, which can only make a few people rich, whilst the common people must live in conditions not even as comfortable as those in the mainland’s tier one cities.

Yet in the reasons given above lie contradictions. If an industry were to attract a large labor force, this will only push labour costs up. But what is needed, is for Hong Kong businesses and industry to be bold and make sacrifices, if they wish to reap dividends. Transforming industry won’t he easy, but Hong Kong still has options out there.

Tourism is one potential target industry for Hong Kong. Hong Kong is still a cheap and convenient destination, and immune from the problems mentioned above. The problem with many Hong Kong people is their unwillingness to change their thinking, and transform their development model. This is obvious in their treatment of mainland tourists, labeling them with the ‘locusts’ tag, especially when it comes to mainlanders bulk purchases of milk powder from Hong Kong shops. Hong Kong’s response is to use the law to restrict this business, but can’t they see the parallels between these protectionist actions and that of the Qing dynasty at the time of the Opium Wars?

This committee members feels this just illustrates that the majority of Hong Kong people are ignorant of the reasons for their city’s economic success. They might talk of capitalism, but in reality are still petty minded in which markets they do business in. And of course they won’t admit this, but prefer to point the finger of blame at the Hong Kong administration.

—–

The article then moves into more predictable political arguments, such as the lack of political rights under the old British colonial administration, but these do not fall under the remit of this site.

The key takeaway from this though is Hong Kong’s economic reality and declining importance in the China market. The problems mentioned in the article are also problems which many in this week’s demonstrations complain of. However given the world class standard of education and business practices in Hong Kong, it must be the case that new avenues of economic development can be found. And one hopes avenues in addition to relying on tourism, which would be a waste of the talented Hong Kong workforce.

The more worrying aspect is the one mentioned at the end of this translation, which is essentially that many Hong Kong people live in denial of the changing international economic landscape, driven by China’s rise. It’s surprising when speaking with young Hong Kong locals at the demonstrations, their limited knowledge of China’s economic impact on Hong Kong’s economy and refusal to deal with mainlanders in their lives, whom they consider backward. That’s admirable if it’s a case of political principles taking precedence over profit. But adopting a ‘head in the sand’ mentality, and not realising how China has changed, means unfortunately many opportunities pass them by. Opportunities which the previous generation took when building Hong Kong into the world class city it is today.

(Article not to be republished without permission or citation).

Chiecon originally first and only site to translate & publish this story in English on the internet. Mainstream media, after reading this translation, copied / tweaked contents to produce same story on their websites:-

Foreign Policy

Oct 6th 2014: http://www.foreignpolicy.com/articles/2014/10/06/read_the_anti_hong_kong_rant_that_s_going_viral_in_china

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