Expat experts overlook rent without trimmings
It is time to deal again with the frequently cited myth that Hong Kong is losing its competitive edge because its currency has held firm against the US dollar while other regional currencies have collapsed.
Leaving aside the fact that the collapsed currencies have brought plummeting industrial production to those countries that suffered them, Hong Kong cannot be much affected as manufacturing has already left long ago. As the chart below shows, over the past 14 years manufacturing employees have declined from 45 per cent of the employed work force to only 12.5 per cent.
The question lies, rather, in whether Hong Kong is losing its competitive edge in services. The answer to this, say many of the expatriate 'analysts' who are so often quoted in these matters, is that it must be, and prominent in the evidence they cite is the rent their employers pay for fancy office space in Central.
These rents are undoubtedly high. Although they have come down a little, the latest government figures still show them at an average of $60 per square foot monthly for grade-A offices in Central.
But just how representative of Hong Kong's services industries are the lofty heights of stockbroking and fund management? Not very representative at all is the answer. Hong Kong is primarily a trading centre, and its services are predominantly based on international trade with the mainland.
Export/import businesses dwarf all others. And just what sort of offices do these businesses occupy? The answer (may I have the envelope please) is - well now, what a surprise - cheap and grotty ones well away from the central business district.
As industry left Hong Kong, much of the industrial space was converted to office use for traders, often illegally but on such a large scale that enforcing occupancy rules on all occasions is difficult.
Much of the new construction in the industrial areas is also what is referred to as I/O (industrial/office), which is a neat way of legalising what has already been an unstoppable trend .
Rent for industrial space used for offices is as low as $10 per square foot monthly, among the most competitive rent for this sort of activity anywhere in the world.
What is more, the high cost of residential accommodation does not exert wage pressure on these businesses anywhere near as much as it does on banks and stockbrokers. Their employees for the most part live either in public rental housing, which is among the cheapest urban accommodation on earth, or have purchased heavily subsidised flats from the Government.
But, even if this were not enough to maintain a very sharp competitive edge for Hong Kong's services sector, where else could these businesses go? They are in Hong Kong because it is where the action is. Hong Kong has what they need in infrastructure, a legal system, employee skills, amenities, financial services, and proximity to ports and the industrial base in the mainland. The mainland itself is just not there yet.
Those who think that all this is not enough for Hong Kong to maintain its competitive edge are well advised not to run their fingers along the sharp side of the blade.