Bid to attract rich mainland migrants backfires on HK
Jake van der Kamp
An immigration scheme allowing investors - largely from the mainland - to seek Hong Kong residency rights attracted HK$13.2 billion in real estate investments in the first nine months of this year.
SCMP, November 16
People accuse me of repeating myself too often in this column and maybe it's true. But I certainly make no apology for it in the case of the ridiculous Capital Investment Entrant Scheme. This one needs a solid hammering every time it comes up.
It is a fine example of how very little our bureaucrats really understand of the workings of an economy. I know they wanted to do good things, in this case improve our prosperity by encouraging investment, but what they have actually done through their ignorance is undermine that prosperity.
First the details. Under the scheme we give permanent residency rights to qualified foreigners who agree to invest at least HK$10 million in Hong Kong, previously HK$6.5 million. Qualified foreigner means Chinese nationals who have bought a cheap foreign passport (Pago Pago, Ouagadougou, that sort of thing). Last year, we removed property from the permissible investments although still allowing it to people who had applied prior to that.
The list of these people is obviously a long one. Note from the chart how active they have been in jumping into our property market recently. They accounted for 15 per cent of total sales and purchase agreements so far this year, which is no small amount, particularly as it represents money that might not otherwise have gone into the property market.
In other words, one branch of government has actively encouraged the property frenzy that other branches of government deplore for driving home ownership beyond the reach of many Hong Kong people. Our Donald devoted a considerable part of his recent policy address to bemoaning high property prices and yet his own underlings helped push them up. Well done, folks. Ever talk to each other in government?
But the strains on the economy are to be seen elsewhere as well. For the last three years, the Hong Kong Monetary Authority has been forced to buy up foreign inflows in order to stop the Hong Kong dollar from rising further than its HK$7.75 intervention level against the US dollar. At present, the balance that the HKMA carries from these money market operations is HK$148 billion. It can carry this without a huge effort, but why carry anything at all?
The single biggest reason is that another branch of government enticed qualified entrants under the Capital Investment Entrant Scheme to stand on the other side of the equation from the HKMA over these same three years with HK$67 billion of HK dollar purchases. Well done, you clever bureaucrats. Ever talk to each other in government?
And this is not to mention the waste of all the paper shuffling in the scheme, for which we pay in our general taxes. But this is a minor consideration in comparison.
The biggest irony of all, however, is that the scheme does not actually bring any new investment to Hong Kong, not even a cent. Think about it. Do these so-called foreigners actually have any HK dollars to invest here?
No, of course they don't. They have US dollars (they don't apply to the scheme with yuan). In order to make their investment with HK dollars they must first exchange their US dollars for HK dollars and they do this with a bank in Hong Kong. The result is that they then have more HK dollars and fewer US dollars while the bank has fewer HK dollars and more US dollars.
But has the total stock of either HK dollars or US dollars gone up with this transaction?
Of course not. All that has happened is that the amounts transacted are now held in different hands. There has been no increase in investment capital or any other capital. Ask any economist if you don't believe me. Balance of payments movements do not increase a stock of money.
But they can put unwanted pressure on a property market or a currency and they have done it here. So clever, so very, very clever.