HONG Kong is hurting. The relentless assault on the city's
long-standing freedoms might be the most visible aspect, but its economy is
also suffering, says Simon Cartledge founder and owner of Big Brains, a
Hong Kong-based research and publishing company, in a commentary
published in the Tokyo-headquartered Nikkei Asia.
The former Asia editor-in-chief of the Economist
Intelligence Unit and author of "A System Apart: Hong Kong's Political
Economy from 1997 Until Now" said that any comparison with the mainland
powerhouse city of Shenzhen - Hong Kong's immediate neighbour - highlights what
is wrong.
Shenzhen, famously nothing more than a border town and home
to only a few hundred thousand people when China launched its economic reforms
in 1979, finally saw its economy catch up with Hong Kong's in 2018.
Since then, Hong Kong's economy - battered first by
anti-government protests, then by COVID-19 - has shrunk for two successive
years. Growth will return this year of between 3.5 and 5.5 per cent, according
to HK's Financial Secretary Paul Chan.
But the rebound will be subdued. By my calculations, the
economy will not regain its 2018 size until 2023, while unemployment, now at 7
per cent, will remain high for at least three years, according to Labour and
Welfare Secretary Law Chi Kwong.
Shenzhen, despite the pandemic, has barely even blinked. In
2019 it grew 6.7 per cent. Last year, it grew 3.1 per cent, comfortably faster
than the 2.3 per cent for China as a whole. This year, the city's economy is
set to expand by at least 7 per cent, with 2022 likely to be similar. Crunch
the numbers, and by the end of next year, Shenzhen will have an economy more
than 25 per cent bigger than Hong Kong's.
This gap will continue to widen, driven largely by
Shenzhen's high-tech manufacturing industry, exports - nearly a fifth of all
China's - its fast-expanding financial sector, as well as its spending on
R&D which amounts to 6 per cent of gross domestic product.
But Hong Kong has long struggled to find new engines of
growth. Its once-dominant trade and logistics sector has been in relative
decline since the mid-2000s. Back then, riding on the back of China's entry
into the World Trade Organization, trade and logistics accounted for just under
30 per cent of the economy, employing nearly 800,000 people. Today, trade
and logistics make up less than a fifth of the economy and employs only 674,000
people.
While the government likes to talk up the potential offered
by technology and innovation, with R&D spending hovering at around 0.75 per
cent of GDP, it is just not that important, Mr Cartledge pointed out in his
commentary.
The one exception to the gloom is financial
services. Figures released last month show that in 2019, despite the protests
and US-China trade war, the sector expanded 8 per cent to displace trade and
logistics as the single biggest contributor to Hong Kong's GDP, now accounting
for more than a fifth of output.
Yet an economy over-reliant on finance is bad for society
as a whole. The sector only employs 7 per cent of the workforce, meaning the
wealth it generates is concentrated in the hands of a relatively small number
of people.
That both further exacerbates Hong Kong's entrenched
inequality, a fifth of the population lives below the official poverty line and
contributes to the asset inflation which has kept its property prices among the
world's highest for years and long been a major disincentive to entrepreneurs
thinking of launching new businesses.
The national security law, though claimed by the government
to have brought stability back to Hong Kong, probably will not help. Though
there does not appear to be any major exodus of businesses, some are quietly
leaving or relocating parts of their operations, with the ease with which
officials can now demand access to data protection one of their biggest
concerns.
With Beijing and the Hong Kong government maintaining their
efforts to eliminate the pro-democracy opposition as any kind of meaningful force,
the law will make it harder to attract companies, particularly Western ones, to
set up in Hong Kong.
In theory, the Greater Bay Area initiative should help with
its promise of integrating Hong Kong, Macau and nine cities in Guangdong into a
seamless economic unit. Yet, particularly since the protests of 2019, the
scheme's main goal has switched to maintaining a high rate of growth for the
key Chinese cities taking part, Shenzhen above all. As a result, Hong Kong's
role is becoming mainly supportive, with its own further development secondary.
With bringing Hong Kong into line with Beijing's political
expectations now her main task, there is no doubt that Chief Executive Carrie
Lam will go down in history as the leader who took an axe to the city's freedoms.
But what is also looking likely is that she will be the figure who oversaw its
relegation to second-tier economic status, comments Mr Cartledge.
Source : HKSG / Photo : BBC.
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