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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is former Asia chair of Jefferies and a former chief executive of CLSA
Since settling in Hong Kong in the mid-1980s, I have observed its numerous cycles of prosperity and adversity during a time when booms and busts were an expected part of living here. During exogenous shocks such as the Asian and global financial crises, there was an understanding that government response was limited and that Hong Kong’s business class would need to get off the floor, wipe their trousers and get back to work.
After all, a laissez-faire economy and government intervention are opposite ends of the coin. Yet as Hong Kong again faces profound challenges, we are mired in misplaced emphasis on government policy that has very little to do with how the economy operates and how the territory finds its ever-changing role in the world economy.
The real drivers of Hong Kong’s success have always been its dynamic business environment, its consistent openness to those chasing prosperity, and a society that is genuinely inclusive of individuals from varied backgrounds seeking opportunities.
This enduring formula — marked more by entrepreneurial spirit and societal openness than by governmental intervention — has enabled Hong Kong to adeptly navigate and prosper through the challenges of the past two centuries. To overlook this, attributing the city’s resilience and adaptability to policy decisions, is to misunderstand the very essence of Hong Kong’s historical strengths and its path to continued success.
When I first came to Hong Kong in 1987 to find a job, pundits were already tolling the bell for its demise. The stock market had shuttered for four days following the global stock market crash, and stalwarts of the business community were scrambling for survival. The once-dominant sectors of garments and shipping were witnessing a precipitous decline. US commentators noted a brain drain of the city’s brightest, alongside a spike in real estate prices across Chinatowns worldwide, driven by Hong Kong investors seeking safer havens.
Yet, many of those who left eventually returned, not lured back by governmental intervention but by the unyielding dynamism of Hong Kong’s economy and its people. While former China bull Stephen Roach lamented recently that Hong Kong is over, that dynamism continues. The city’s liberal market policies, coupled with a tax system conducive to wealth retention, remained unparalleled. Yes, personal taxes for the wealthy are rising 1 percentage point to 16 per cent, but what economic policies have changed that impact how business is executed?
Today, Hong Kong continues to be a nexus of capital and innovative business practices despite its evolving landscape. The garment industry moguls of yesteryears are today’s property developers, and shipping firms have morphed into conglomerates. I have seen this movie before.
What should government policy look like today? Clearly, property is the largest challenge, and government policy needs to get out of the way. The market in Hong Kong has created enormous wealth — but it has been a one-trick pony of ever higher pricing. Hong Kong has ample districts awaiting redevelopment while developers own significant tracts of rural land. The government must change its adversarial relationship with developers and let them get on with the task of developing new housing and social spaces that are Hong Kong’s key to the future. The current policy of extracting top dollar from land sales and premiums has to give way to a practical approach that balances free market returns and the tax needs of the government. If Hong Kong is serious about changing the game here, grand schemes are not the answer — let the market take that lead.
This all implies that property prices will probably fall, but new wealth will be created as the market finds its balance and new opportunities are created by rental costs that allow new entrepreneurial opportunities to arise. Investors will be pulled in as Hong Kong will require capital for growth and development once again. This is far better policy than drone shows and fireworks to address some of the territory’s fundamental challenges.
After nearly 40 years working in Hong Kong, I still find new and exciting projects, full of young people looking to get their foot in the door and enrich their lives and bank accounts. The mix of new entrants has changed somewhat. Obviously more kids from China by way of schools in Beijing, California or the UK for example. But the common thread is they want Hong Kong to be home and they are hungry to succeed. Yes, the froth of the most recent bull market is gone for now. But Hong Kong will not only survive, but thrive as it always has.
