Rising domestic demand drives HK into heavy traffic
If you find yourself cursing at increasingly blocked traffic these days tell yourself that it's the price of wealth. The latest release of economic figures shows that the two are more directly linked than ever before.
The driving force of the economy in the most recent quarter was the consumer and the most notable shop in which the consumer was doing this driving was the drivers' showroom. The value of car sales in the fourth quarter was 36 per cent higher than a year before.
It actually marks a significant change in the pattern of Hong Kong's economic activity. As the first chart shows, while our overall economic growth has been relatively steady at high levels over the last four years, the picture for domestic demand (everything but the contribution from trade) has been much more volatile.
Notice from the chart how domestic demand actually showed negative growth numbers in late 2004 and early 2005 while the overall gross domestic product continued to expand at more than 6 per cent. It was strong trade growth and a sharp contraction in the merchandise trade deficit that buoyed the economy then.
And now the picture has reversed itself. Our service industries are still booming but the merchandise trade deficit has worsened again and it was domestic demand that sustained the economy towards the end of last year. It grew by 11.4 per cent in the fourth quarter, far above the overall economic growth rate of 6.7 per cent.
It was mostly the consumer who was responsible for this. Private consumption expenditure was up 10 per cent and, within this, the sub-category of spending on consumer durables was up 23 per cent.
The retail sales figures show that this most notably took the form of those car purchases and purchases of electrical and electronic goods.
Flat-screen television sets cause no traffic jams but I do find myself occasionally muttering these days about the number of cars now on the road (while driving my own car but I shall continue to do so until those obnoxious televisions are removed from buses).
One other trend in the economic figures is worth noting in light of our government's continued pledges to more capital spending.
As the second chart shows, annual expenditure on building and construction in real terms is less now than it was 20 years ago while expenditure on machinery, equipment and software has risen sixfold.
The decline in construction expenditure is particularly notable in the public sector, where it now stands at less than half of what it was 10 years ago. These are the circumstances in which Chief Executive Donald Tsang Yam-kuen has called for a major expansion of infrastructure spending.
The figures do not necessarily support Mr Tsang's stance, however. Public construction spending may be well down but this is to be expected in a maturing economy that already has its major transport, power and water infrastructure in place.
The natural pattern for any strongly growing economy is to devote a great deal of its expenditure to capital formation in the early stages of growth and then gradually spend proportionately less on it as wealth rises. The money goes instead to machinery and equipment that makes use of the infrastructure spending and on consumer goods and services.
The figures suggest that this is exactly Hong Kong's pattern of growth and, if so, the construction slowdown of the last 10 years is no anomaly but only a natural development and the construction industry has no special case to plead that more be spent on construction.
This won't convince our Donald to reconsider his plans, of course. He is a dedicated concrete pourer. Some software just can't be reprogrammed.