THE VIEW
The View
by

Hong Kong could lead the world if we made this one simple change to our social model

Allowing users of government services to upgrade to higher levels of pampering fits with our economic culture

PUBLISHED : Thursday, 31 March, 2016, 4:16pm
UPDATED : Friday, 01 April, 2016, 9:40am

The government has just announced the building of a new large public housing estate that charges (quite) high rents, a government hospital where the treatment costs (but not too much), and a series of schools run by the Education Bureau where the fees will be quite high (but not very).

April Fool! They have announced nothing of the kind – but they should, because the city that spawned the slogan One Country Two Systems could also be One Region Two Speeds.

Hong Kong is wealthy. Our average income is US$40,000 per head but the disparity, as measured by the Gini coefficient (a measure of how much is owned by how many) is now 54 per cent, way over the global average of 38 per cent. Forbes says the city now boasts over 55 billionaires, who together own around 80 per cent of Hong Kong’s GDP. Some 1.3 million (18 per cent) of Hong Kong residents are technically poor. We live in a two-speed city.

Hong Kong can easily afford the capital cost of upgrading our public services to incorporate a paying business class for the middle classes

We have first class services for rich people and we also have universal economy class services for poor people. What we don’t have are business class services for our large middle class who can afford to pay a reasonable price for reasonable quality services.

In the housing sector, the average private sector property costs around HK$5 million, 30 per cent higher than that in greater New York, so that represents first class. The average Hong Kong earner takes 15 years to earn that money, making property half as affordable than London, and three times worse than Tokyo. And you probably live in the same 400 square foot space as your parents did. High prices are to be expected in a confined space in a big city – but being on the top of the scale is uncomfortable.

We should therefore be rightly proud of our economy class public housing sector, which shelters a full 30 per cent of our population. Unsurprisingly the pressure on government for housing continues to be immense, not least because demand has massively outpaced build. A business class housing sector, using public sector resources and charging business class rents, would reduce the load.

The two speeds can also be seen in healthcare where again we should be rightly proud of our excellent economy class public medical system. It will treat the sick regardless of income level or payment – so naturally it is full to overflowing.

Private health treatment in Hong Kong is first class; attention is immediate, surgery comes with hotel-like accommodation, but it is charged egregiously. It is fine to have the best medical staff but there is a fair price for everything, and roughly HK$60,000 an hour for a surgeon is not fair. Indeed if you have a critical health problem you will often end up in economy class; in a low cost government hospital.

A business class medical system paid for by government would charge higher fees to recoup operating costs and would produce a better balance of demand against supply. It would service those who want quicker attention, those who want a smaller and less crowded ward, and those who want more nurses.

Our two-speed education system boasts an economy class public school system that is free throughout but it poorly equips employees to service a global marketplace. Many students opt for first class; to be educated overseas or in locally based international schools - at high cost. Government could establish a business class system of fee-paying schools for the middle class with smaller classes and wider facilities.

A business class service model would reduce pressure on public services and provide a useful cash contribution. It would reduce costs while maintaining standards. Not all of the expensive doctors (or other top professionals) in Hong Kong are efficient, or helpful, or even good - because the restrictions on overseas qualifications hamper the competition.

Hong Kong can easily afford the capital cost of upgrading our public services to incorporate a paying business class for the middle classes by reallocating part of our HK$800 billion reserves into hypothecated funds; say an Education Fund, a Health Fund and Housing Fund. And the government would become instantly popular as it would reward the people of Hong Kong for their hard work and build paid services for the middle class, leaving the economy class services available for the lowest 20 per cent on the income scale.

Hong Kong’s particular advantages give us the opportunity to be world class in very few areas. A business class model could provide a first class benchmark for social services worldwide.

Richard Harris is Chief Executive of Port Shelter Investment Management. www.portshelter.com

Shortly before Christmas, a photograph of a family entitled “Visiting Grandma” circulated via email.

It showed an old lady looking bemused, surrounded by her happy family, each hunched in a posture of prayer over their smart devices. On Boxing Day, my brother sent me a photograph of the whole family adopting the same position – including my 85-year-old mother, peering intently at her iPad mini, one finger hovering purposefully.

The outright share price winners in a straight race in 2015 were the global personal technology companies. Amazon was up an amazing 122 per cent; Google, now known as Alphabet, soared 49 per cent; Facebook rose 36 per cent; and Tencent was up 35 per cent. These price movements illustrate the grip that technology has on our lives and that of the market.

Most of these big companies have been making steady acquisitions, which are now bearing fruit. Microsoft owns Hotmail, Skype and a stake in Apple and Expedia. Facebook picked up Instagram, Lightbox, Oculus and WhatsApp. Alphabet boasts the Android operating system, Google Search, and YouTube. Analysts said this week that YouTube is now worth twice the value of Netflix and accounts for 15 per cent of Alphabet’s revenues. The key to YouTube’s growth is that it is largely free, although Amazon and others are seeking to charge for premium services that used to be free.

Part of the success of these tech monsters is because their youthful business models have themselves adapted to change

The laggard is Apple, which led its competitors in cornering its own ecosystem of hardware, software and retail ware. It is in consolidation mode with US$200 billion of cash burning a hole in its pocket but with an enormous opportunity to do something special.

Part of the success of these tech monsters is because their youthful business models have themselves adapted to change. Amazon began as an online bookshop – but is now the nearest thing to an online department store, selling a wide variety of products. Books pioneered online marketing, payment and distribution and provided a platform for anyone to use.

There is an increasing trend of shops becoming owned by the online providers – the Internet Plus idea that is illustrated by Alibaba’s US$7 billion tie up last year with electronics retailer Suning. Recent figures suggest that as much as one-third of clothing bought through the internet is returned – and that doesn’t include the T-shirt you gave your brother for Christmas that you couldn’t be bothered to return. Returns themselves are big business, tying up cash and driving further impulse buying through the return process. Internet Plus allows customers to see the products in Suning, buy them from Alibaba, and take the returns back to Suning; using the advantages of both online and offline shopping. Shops could develop into megastores; a shopping experience with shelves of goods to sample as a physical window to online shopping, perhaps combined with coffee, books and entertainment.

As if to mock the big innovations of the past 25 years, there are still many just around the corner. 2016 may be the “year of the wrist” with a flurry of digital wrist jewellery. The most commonly downloaded free application from the Apple Store this Christmas was for the Fitbit – the device that tells you when you are asleep, exercising, and burning calories. I was never going to swap my Breitling for a clunky piece of digital plastic until I found a GPS enabled jogging watch that tells me that a 7.25km run up and down Mount Butler (274 metres vertically) is the same calorific value as a cream cake – at least they neutralise each other.

2016 is going to give us visibility on what life will be like in the twenties. Driverless cars are here to stay, the first one having been ticketed by a policeman. They would be here faster if it were not for the regulators – lucky for Karl Benz that he did not have to deal with them. The electric car is invading Hong Kong’s roads, despite being invented and abandoned in the 1830s by Robert Anderson, as being heavy, expensive and requiring constant charging. Hoverboards could develop as a real alternative to walking around Central. Drone technology has revolutionised warfare and is likely to do the same to our peaceful lives. 2016 will see more virtual reality technology, more smartphone apps controlling our lives, and new processes like paying our bills and monitoring our health becoming the norm.

The unspoken negatives are a rapid decline in privacy and security. The GPS already identifies our movements to an arm span’s accuracy. You can be sure that 2016 will bring bigger and more frightening cyber security breakdowns than ever before. The next tech company investment surge may be in that sector – just to protect what we have.

Richard Harris is chief executive of Port Shelter Investment Management

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