The Hong Kong government claims to be helping develop new engines of economic growth. But its actual policies are handing outsized profits to a favoured few at the expense of small and growth businesses. The August 15 issue of The Economist makes a telling point about one of the reasons behind Japan's long sluggish performance: corporate profits as a percentage of output are 60 per cent for large and medium-sized firms but only 20 per cent for small firms.
A few of those big firms may be brand names operating amid international competition, but most are domestically oriented companies in regulated, protected markets. Their profits reflect a squeeze on wages and high prices for consumers caused by inadequate competition and high barriers to entry. Small businesses lack the clout to rig the system.
And so it is in Hong Kong. The equivalent data may not be available but a glance at the performance of the major domestically oriented conglomerates shows very clearly how the manipulation of government enables many to achieve remarkably high profit levels.
Overall, the share of employees in value added has been falling since 2001 as profit levels have risen. Profits have not yet regained their 1994-96 peaks when the Real Estate Developers' Margin (no longer a separate item in the national accounts) accounted for 9 per cent of gross domestic product. But, at 48 per cent of value added, they are healthy enough.
Just look at developers' profits in the light of the collapse of housing construction, a collapse almost entirely due to government actions that have no economic rationale and simply favour a handful of landowners and their representatives on the Executive Council.
Although public housing construction has almost halted - despite the continuing disgrace of cage homes - private housing supply has also fallen to record lows. Lower household formation growth is one reason.
But the main beneficial policy has been the government's deliberate refusal to sell land. Since regular auctions were replaced five years ago, a yearly average of just 5.5 hectares has been sold under the application system, even though the Lands Department has about 60 hectares on its application list.