Published: 19:59, June 11, 2024
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Hong Kong is guaranteed to bounce back
By Ho Lok Sang

Hong Kong used to enjoy a good reputation for its “legendary resilience”. Sadly, that legendary resilience has now gone into retreat. I am positive that if we humbly examine how we got to where we are, and then put our heads together, it will come back.

The 1970s were a tumultuous decade for Hong Kong. We had two major oil price shocks, both related to geopolitics arising from the Middle East. After the OPEC oil price embargo hit, the Hang Seng Index dropped from a peak of 1,770.85 in May 1973 to 150.1 on October 12, 1974, for a total loss of 91.5 percent. Yet Hong Kong’s economic growth never entered negative territory. Even 1975 registered a growth rate of 0.5 percent. In 1976, the economy came roaring back, growing at 16.2 percent, then at 11.7 percent the following year. Hong Kong never had a single year of negative growth from 1962 to 1997.

Sadly, after the establishment of the Hong Kong Special Administrative Region, we recorded multiple years of negative growth.

This has nothing to do with the city returning to the motherland, however. It had everything to do with a subtle transformation of culture, which is the transformation of Hong Kong from an economically focused city to a politically focused one. Prior to 1997, and especially in the decade under the governorship of Sir Murray MacLehose, policy was rarely driven by politics. Although MacLehose introduced the 10-year Housing Programme and nine years of free mandatory education to Hong Kong — as well as a host of other monumental policies like the designation of country parks, new town development, and establishing the Independent Commission Against Corruption — he was not popularist. As pointed out by academics Ray Yep and TL Lui in a 2010 article, MacLehose was not at all enthusiastic about social welfare reform. A believer in self-reliance, his Home Ownership Scheme (HOS) introduced in 1978 required anyone who sold their flat to first repay the land premium they owed (which had allowed selling at a discount in the first place) at the prevailing market price.

The transformation of Hong Kong from an economically focused city to a politically focused one was to do with Hong Kong people being awakened to the power of politics, with British rule coming to an end and the last governor Chris Patten introducing policies to democratize Hong Kong. Even prior to the handover, Hong Kong in the 1990s had lost steam, increasingly lagging behind Singapore in economic growth.

Hong Kong people learned to put pressure on the government to get what they wanted. Judicial review and protests increasingly became a new way of life for Hong Kong residents. Self-reliance gave way to “rent-seeking”. After 1997, bolstered by large fiscal reserves, the SAR government lost a sense of “public policy for public interest” and acquired an inclination to make public policy on popular demand. What makes me particularly frustrated is that policies were rarely evaluated for their social costs and benefits. I have pointed out that Special Stamp Duty (SSD) made things worse for starter-home buyers and presented evidence to make the point. But SSD, together with other impediments to the effective functioning of the housing market, had to wait till this year’s budget speech to be removed.

At this point, I still think that reviving the spirit of self-reliance through a revamp of Hong Kong’s housing policy is crucial for its economic recovery. Although Hong Kong does enjoy a lot of favorable factors — including our infrastructure, our legal system, our strong international network, our strength in innovation, and particularly our unique status as the most international city in the Guangdong-Hong Kong-Macao Greater Bay Area — the prevalence of the rent-seeking culture is seriously undermining the spirit of the middle class.    

We need to realize the gravity of the situation confronting Hong Kong. Many people may not be aware of it. Our GDP in 2023 in real terms is smaller than it was in 2018 (by 2.7 percent). Our GDP per capita in 2023 in real terms is smaller than it was in 2017 (by 1.8 percent). Our April retail sales dropped 14.7 percent year on year.  Our latest Purchasing Managers' Index (May 2024) fell from 50.6 to 49.2. New orders suffered the steepest fall since October 2022.  

While part of the decline in retail sales may have to do with Hong Kong people going to Shenzhen for shopping, the weakness in Hong Kong’s housing market must also have played a role. Homeowners who bought their homes without government support face losses that could be worth millions of dollars, representing many years of savings.

Some people may think that a decline in house prices is a good thing. In fact, a housing market that can serve as a reliable store of value is a very favorable factor for the economy. Normally the middle class, which generally includes professionals and owners of small and medium-sized businesses, seek financial independence and will typically buy their own homes — first relatively humble starter homes then trading up to better ones. In Singapore many families living in public housing managed by the city’s Housing & Development Board (HDB) want to move to the private sector for a better location and better-quality housing when they can. As a result, the share of households in HDB housing has dropped. In Hong Kong our public housing and HOS housing keep expanding. Many middle-class families are giving up and finding it advantageous to fall in line.

The author is director of the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.

The views do not necessarily reflect those of China Daily.