SAR economy must reinvent itself

Regina Ip says the SAR must think through how it can keep pace with the nation's road map for development, and this involves going beyond property and the mainland market

PUBLISHED : Sunday, 06 January, 2013, 12:00am
UPDATED : Sunday, 06 January, 2013, 4:55am

In a recent policy paper on the implementation of "one country, two systems" by Zhang Xiaoming, now serving as the head of Beijing's representation in Hong Kong, he drew attention to "three relationships" which must be properly managed if this bold and unique concept is to be successfully implemented in Hong Kong and Macau.

Of the three, the one that concerns the relationship between mainland China and Hong Kong in the economic arena - taking full advantage of the strong backing of the mainland while raising Hong Kong's own competitiveness - deserves much closer attention than it has so far received.

It is indeed a pity that Hong Kong's pundits have shown so little interest in sifting the tea leaves of Zhang's exhortations to acquire a deeper understanding of China's developmental interests, and how Hong Kong could contribute to it and, in the process, enrich itself.

Zhang said in his paper, right from the start, that the "core demand" and "fundamental objective" of "one country, two systems" are to uphold the sovereignty, security, developmental interests of the nation and the long-term prosperity and stability of Hong Kong. By "developmental interests", Zhang stressed that he did not mean ordinary sectoral economic interests, but the fundamental interests of the nation's overall development.

What are China's core developmental interests? For a nation of 1.3 billion with a per capita gross domestic product of only about a fifth of the world's average, according to World Bank estimates, and with about half its population still residing in the rural areas, its priority must be to keep pushing for urbanisation. It must also continue to upgrade its economy to create better-quality jobs to raise people's standard of living.

More than 30 years after the reform and opening up, China has seen the depletion of natural resources and environmental degradation, while the percentage of profits captured by mainland manufacturers supplying endless streams of consumer goods to the developed world has remained small. Chinese leaders do not need to read Paul Krugman's 1994 article on the myth of Asia's economic miracle to discern that China's growth has been mostly "perspirational", not "inspirational".

The former involves generating growth by way of massive consumption of resources - capital, labour and natural resources - while the latter, more intelligent model creates wealth through leveraging brain power. Owners of intellectual assets - brands, patents, trademarks - in the developed world capture the largest share of profits while original equipment manufacturers and their workers in the lower rungs of the value chain often earn no more than 10 per cent of the profit margin. It was with good justification that Time magazine named "The Chinese Worker" a runner-up in its Person of the Year award in 2009, formally recognising the contributions of these low-paid workers to the well-being of the world.

There is a pressing need for China to break out of this mould if it is to avoid being caught in a "high-level equilibrium trap", as it was in the late Qing dynasty. The abundant availability of cheap labour took away incentives to increase productivity by greater use of science and technology. China took scant notice of the emergence of the scientific method and the industrial revolution in the West until technologically superior Western powers forced open China's doors in the 19th century.

History played a big hand in minting modern China, and it has made clear it will not allow history to repeat itself.

How can Hong Kong contribute to the nation's overall development as China embarks on its historic mission to regain its past glory and dignity? First and foremost, it can help by remaining prosperous and stable.

Secondly, it can continue to serve the nation and enrich itself by reinventing itself and assuming new roles to accelerate China's economic modernisation. As Hong Kong's manufacturing capability migrated north and mainland manufacturers trained their own managers, Hong Kong's traditional role as an intermediary and change agent in the sector has diminished. Its cross-border transport and logistics sector are facing increasing competition from mainland cities. But it can contribute to modernising China's service sectors, particularly higher-end professional, financial and technology-related services geared to supporting a knowledge-based economy.

As Hong Kong reeled from one financial crisis to another after 1997, it has benefited from strong backing from Beijing, which has responded to Hong Kong's requests for mainland tourists and offshore renminbi business, among others. But it must re-examine its growth strategy critically - whether its quantitative growth masks a qualitative standstill.

Other than relying on infrastructural and property development and the mainland market, does it have a strategy to generate high-quality growth by itself? How does Hong Kong plan to increase the productivity and value of its economy and, in the process, help its motherland as well as itself? These questions require a response from every thinking citizen who calls this city home.

Regina Ip Lau Suk-yee is a legislator and chair of the New People's Party