The View

Time for Hong Kong to start spending nest egg ahead of 2047

We’re the richest city in the world, with estimated consolidated government reserves of HK$1.57 trillion

PUBLISHED : Thursday, 04 February, 2016, 8:33am
UPDATED : Thursday, 04 February, 2016, 8:33am

I am a fire monkey, the most competitive, aggressive and directing of the simians. Monkeys are renowned for being smart and curious – peering ahead. But first I’m going to look back to Margaret Thatcher’s famous visit to Beijing in 1982.

At the time, I remember well, it did not seem extraordinary to hear her say (working off-script as usual) that Britain was seeking to extend the New Territories lease. Apparently Deng Xiaoping became incandescent with rage, largely because it had not first been discussed behind closed doors. He told Thatcher he could take the whole colony over tomorrow – after all, the Chinese had more soldiers than the British had bullets. Thatcher retorted that if that happened “everyone would see what the Chinese were really like”.

The next 17 years saw enormous energy expended by Hong Kong citizens to secure a future anywhere but here – as insurance against an unfriendly China. Hong Kong wore the risk burden – remaining a permanently cheap stock market for the best part of two decades. Despite the bickering, both sides negotiated a lasting settlement, the highly successful One Country, Two Systems policy, which has provided prosperity and stability beyond the wildest dreams of the wildest pessimists for the past 18 years.

The mysterious disappearance of bookseller and author Lee Po raises the spectre of the handover once again. If a British citizen living in Hong Kong can be spirited back to China, then maybe 2047 is closer than we think. If 17 years was long enough for us to worry about the last handover, then a period of 25 or even 30 years might not be too short to think about the next transfer of power. We have more time to worry because we have been here before. It looks like déjà vu all over again.

Why are we still so uncomfortable at the thought of the ending of the Basic Law?

Then again how much and how fast could China change? In the past 35 years, China has changed dramatically as an economy and a society – we might even say become more like Hong Kong. So why are we still so uncomfortable at the thought of the ending of the Basic Law?

What would a 2047 Hong Kong look like? “No Facebook,” say the Occupy Central students. Would the police retain their sense of discretion, discipline, and fair play? Would the Independent Commission Against Corruption become corrupted? You can currently sue the government and not disappear, as everyone is equal under the law. What would secure our property rights if Hong Kong’s laws were repealed? Could we freely elect district councillors? Would our money transfers around the world be restricted or frozen?

Perhaps the biggest question is what happens to Hong Kong as a financial centre when we lose our privilege to issue our own currency. If we then use the yuan as the sovereign legal tender, what happens to Hong Kong’s enormous reserves?

We are the richest city in the world with estimated consolidated government reserves at an eye-watering HK$1.57 trillion. This is equivalent to New Zealand’s economy, the 54th-largest in the world. Held by a small Chinese city ranking just 14th by population nationally. Not only is the pot whopping but it continues to grow – by an estimated HK$100 billion this year, according to accountants PwC. The Basic Law recognises that those who made that money are the people of Hong Kong. But in 2047, if those reserves still exist, the money will be subsumed by the central government in return for an annual budget. Is that a fair swap?

Perhaps June 30, 2047, is still a little too far away to get worked up about – although the missing Lee Po makes it seem just a little bit closer. Time is running out to figure out what to do with our honey pot. Simple maths tells us that in order to spend down our mountainous pile of cash, we could run breathtaking deficits of HK$50 billion every year until 2047.

We would not need to tax permanent residents ever again. We could seed a citywide provident fund for permanent residents (like Singapore’s), a health fund, or an environment fund to improve our filthy air. Investing big bucks in our pensions, improving social support, and investing in leading edge foreign technology will have no impact on our future lifestyle.

Our nest egg is now so big that it is essentially worthless – fit only for the worst of global collapses, when our investments might become worthless anyway. The fire monkey is agile, impulsive and sometimes reckless but he would look to spend our money where it was earned and not save it for a day, so rainy, that it will never come.

Richard Harris is chief executive of Port Shelter Investment Management