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Monday, June 13, 2016, 22:37

More wet and dry public markets would foster healthy competition

By David Wong

In 2003, the financially stressed Housing Authority announced that it would sell its 1 million square meters of retail facilities and 100,000 parking lots in 180 different property developments. According to records of the time, the authority pointed out that by disposing of these properties it can concentrate its limited resources on fulfilling its duty of providing public housing to the needy; and the move was also in line with the principle of “big market and small government”.

More wet and dry public markets would foster healthy competition By the end of 2005, the Link REIT was set up and listed on the Hong Kong Stock Exchange by the government, which hived off assets from the Housing Authority, generating a one-time revenue of $34 billion for the government.

It should be noted that the establishment of the Link was the result of a combination of unique historical factors and circumstances: The government was in fiscal deficit and struggled to sustain its public housing development plans. Unfortunately, the Link has demonstrated some disturbing behavior in recent years, such as drastically raising rents, outsourcing property management and selling off part of its asset portfolio, in its attempt to maximize profits. This blatant disregard of its social responsibilities has caused outrage among the public and should be condemned by every quarter of the community.

The Link has repeatedly pushed up the rents in its shopping arcades, forcing many small shops to shut down. Many of its malls are now almost completely dominated by large-scale chain stores and consumers have been deprived of their choices. As at late 2015, the Link has increased its rents by around 30 percent while the Rating and Valuation Department has reported an overall decline in retail property rents in the same period. The Link’s ability to defy market trends and keep raising its rents suggests it might have exploited its market-dominating position and acted against the principle of free competition.

Moreover, the Link has outsourced the management of some of its shopping malls. These contractors have been repeatedly accused of allowing unlicensed tenants to operate, charging ever higher fees on small tenants and manipulating retail prices in the wet markets. These dubious actions were widely criticized and reported in the press. Some contractors have planned to renovate the wet markets, claiming to improve the environment and competitiveness. However, many fear that it is yet another excuse to raise rents and force out small operators. Some commentators have claimed that after the small operators were gone, the Link and its contractors would replace them with their own subsidiaries and monopolize those retail spaces to the detriment of consumers.

It should be emphasized that outsourcing management does not mean outsourcing responsibilities. The Link should tighten its supervision of the contractors and put an end to any inappropriate activities that infringe the lawful rights of consumers. Furthermore, the agreement between the government and the Link was full of loopholes that enabled the Link to sell off its properties one by one. The new owners were reported to be even more excessive in trying to squeeze every penny from their tenants. One shameful deed was the abolishment of rent concessions on parking spaces for disabled drivers.

There have been repeated calls from the community urging the government to buy back the Link’s assets. But it is not going to be easy, given that the Link is now worth more than $100 billion and any announcement of a government buyback would be likely to send its share prices skyrocketing. Moreover, with falling government revenue forecast for the coming years, the feasibility of buying back the Link is questionable. The example of the Link has demonstrated that it is not practicable to operate and manage public assets with purely corporate business models. The government should stop disposing of the Housing Authority’s properties. And, in the existing government-run facilities, it should allocate some portion of the spaces to small-and medium-sized enterprises to help boost the local economy.

The government clearly understands the dilemma it faces regarding the Link, and Chief Secretary for Administration Carrie Lam Cheng Yuet-ngor has reportedly criticized the Link’s business model. The Link recently declared that it would review its operation model and suspend the outsourcing of management and sales of properties. This is no doubt a result of rising pressure from both the government and the community. Still, the management of the Link was unrepentant, denying that there was any legal problem with its actions.

In the medium and long term, the government should build more municipal services buildings that include, among other functions, wet and dry public markets. With more competition, consumers can have more and better choices. As some of the existing public markets under the control of the Food and Environmental Hygiene Department are not well managed, with many featuring outdated facilities and high vacancy rates, a new independent organization under government supervision should be tasked to operate public markets and improve their service quality so that they can compete with the Link.

The author is an executive member of the New People’s Party and a former civil servant.

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