The big squeeze

PUBLISHED : Wednesday, 18 April, 2007, 12:00am
UPDATED : Wednesday, 18 April, 2007, 12:00am

Recovery? What recovery? Frustration and anger at government handling of the last recession and the Sars outbreak prompted businessman Andrew Fung Wai-kwong to set up lobby group Middle Class Power in 2002. Others vented their feelings by turning out en masse for the July 1 rallies in the following two years. But although market sentiment has improved over the past couple of years, many middle-class folk - often described as Hong Kong's backbone - say they're still feeling the squeeze. Worse, some fear they may be sliding towards poverty.

'A senior manager was paid about HK$50,000 in 1997, but now employers can hire people for the same post for HK$35,000 or even HK$30,000,' says Fung.

Ting Kwok-fai, a professor of sociology at the Chinese University, says professionals in financial services and accounting are benefiting from a more buoyant stock market, but prospects remain poor for middle-level managers in other sectors. Such personnel are most vulnerable to corporate streamlining, he says.

Take William Leung, a senior customer officer at a telecommunications company. Since 2000, his employers have hit staff with two pay cuts, slashing

his salary from HK$24,000 to HK$18,000. Although the business climate is brighter now, salaries haven't been revised to reflect the upturn. And like many Hongkongers, the 55-year-old regularly puts in several hours of overtime each week without compensation.

Leung's situation isn't exceptional. Household incomes have yet to return to levels reached before the financial crisis of 1997 and collapse of the property bubble. Official statistics put the median monthly income at HK$17,000 last year - HK$2,000 less than before the handover. It may not seem like much, but Fung says the middle class is shrinking and that the squeeze is likely to continue for some time.

'Facing fierce competition from the mainland and neighbouring countries, we don't believe the local economy will grow strongly enough to provide enough jobs for the middle class,' Fung says.

Middle class is a vague term used variously to describe people's mentality, behaviour and social status. But according to Middle Class Power, any household with an income of HK$20,000 to HK$50,000 a month qualifies.

Government statistics show that those in this bracket comprise 32.7 per cent of all households, 5 per cent down from 10 years ago. Most have slipped into a lower income group. The proportion of households earning less than HK$20,000 rose 5 per cent since 1997 to 56.3 per cent last year.

Leung, his family's sole provider, hasn't been able to make ends meet. Although his income has dropped by a quarter in the past six years, the expenses have quietly crept up. He's paying 40 per cent more for travel, especially for bus fares, which have risen as companies have updated their fleets. Another major outlay is tuition for his 19-year-old son, whose sub-degree programme costs HK$40,000 a year.

The family has tried to cut spending as much as possible. They've stopped eating out and overseas holidays are little more than a distant memory.

'We used to travel to the mainland or Southeast Asia once a year, but we haven't done that for a few years. I need to watch every dollar I spend every day,' says Leung, who brings lunch to work daily to cut costs.

Yet such measures aren't enough to make up the difference, so he

has been dipping into his savings every month.

However, Leung is thankful that he has escaped the nightmare in which many homeowners are mired: negative equity. He paid off his mortgage in 1996, just before the downturn. 'I wouldn't have been able to support the family if I still had to finance the loan,' he says.

Fung says massive layoffs and salary cuts have seriously eroded the confidence of the middle class. 'They used to be very optimistic about the future, expecting everything to turn out as planned - with stable and enviable jobs,'

he says.

However, the volatile job and real estate markets have since dashed many people's hopes of becoming homeowners.

For food company manager Virginia Lam Yun-wa, the collapse in property prices didn't just bring economic pain - it cost the life of

her husband.

The couple thought they were realising a dream when they made the down payment for a 500sq ft flat in Discovery Bay. But her husband lost his job soon after they moved into their new home in 1998. Meanwhile, the value of the flat was plummeting. Unable to cope with the stress, he jumped to his death the next year.

Lam, 36, eventually sold the flat in 2004 for HK$1 million, less than half of what they had paid for it. 'We bought it at HK$2.3 million, when the price had dropped by half a million from its peak of HK$2.9 million. So we thought it was a good buy at the time,' she says.

While she concedes they misread the property market, Lam blames the government for luring families into making purchases through low-interest loan schemes launched in 1998 aimed at enabling 70 per cent of households to live in their own homes within a decade.

'We used to live a comfortable life renting a village house in Tai Po for HK$7,000 a month. But the mortgage cost HK$17,000 a month, which was about half our income at the time. We were lured by the low-interest government loan into buying the property,' she says.

Lam isn't free from debt yet. After selling the flat, she still owed the bank HK$1.5 million on the mortgage, which her parents and two sisters helped settle. Now, besides paying off the government loan, Lam is reimbursing her family in monthly instalments.

Families relying on a property upswing to lift the values of their homes back to boom-era levels had better rethink their plans. The recent fillip was limited to the luxury market, with mid-range residences still 40 per cent below their peak before 1997, says Chinese University economist Kwan Cheuk-chiu.

Housing aside, education for the next generation is another major challenge for middle-class families. Most are well-educated and want their children to receive quality schooling, but many are beginning to question whether the city can deliver what they need. 'The series of education reforms after the handover baffled many parents, who have become ambivalent about sending their children to local schools,' says Kwan.

And not all families can afford international schools, especially those in the lower middle class or with more than one child.

Poon Kin-ming, 36, heads the regional office of an information technology firm. His daughter has just turned one, but he's already wondering if they will be able to afford the fees for a good school when she gets older.

His industry is a fickle one, and he says there are fewer senior posts available as companies move out of Hong Kong or recruit from the mainland and abroad instead of hiring locals.

'Before 2000, I used to receive two or three calls from headhunters every week,' he says. 'But after the IT bubble burst, I had to look for jobs myself and sometimes it takes a year to find one.'

Despite the pain inflicted by the past decade's economic roller coaster, Ting says people should learn to see the positive side of

the uncertainty.

'The path was so smooth before 1997 that the middle class used to take everything for granted,' he says. 'But having been through the ups and downs, many are learning to prepare themselves for bad times. More people have enrolled in community colleges to upgrade their skills, which is good for the development of Hong Kong.'