Hong Kong needs a clearer view of population growth model

Andrew Sheng says broad vision in ongoing consultation must lead to political decisions

PUBLISHED : Friday, 14 February, 2014, 9:06pm
UPDATED : Wednesday, 28 September, 2016, 8:44am

Hong Kong is currently consulting the public on its population policy. The steering committee proposes that the policy should "develop and nurture a population that will continuously support and drive Hong Kong's socio-economic development as … a socially inclusive and cohesive society that allows individuals to realise their potential, with a view to attaining quality life for all residents and families".

That is a very noble objective, but the real tough questions are what "number" do we want and how do we define "quality"?

It all depends on the context and the relative position of Hong Kong to its neighbours and competitors as a world city.

The facts are illuminating. The city's population has grown very slowly and is ageing fast. With a population of over 7 million, of which there are 312,000 foreign domestic helpers (8 per cent of the labour force) and an unemployment rate of just over 3 per cent, the labour force will begin to peak in 2018 and steadily decline as the population ages. By 2041, one in three will be over the age of 65.

The labour force will begin to peak in 2018 and steadily decline as the population ages. By 2041, one in three will be over the age of 65

The reason is because the fertility rate is among the lowest for an advanced economy.

Furthermore, the low-skilled foreign labour participation level (excluding domestic helpers) is only 0.1 per cent of the labour force, compared with 20 per cent in Singapore and 26 per cent in Macau.

The current average gross domestic product growth rate of 4 per cent per annum comprises 1 per cent growth due to workforce growth and 3 per cent from productivity growth. When the labour growth rate turns negative after 2018, productivity growth will have to increase substantially for Hong Kong to maintain its growth rate.

The policy dilemma is how to increase both the labour force (quantity) as well as the quality. The free market will not solve this dilemma.

This is because the quantity and quality of land, labour, capital and human capital are all determined by government policy. If a state has difficulty increasing land supply, plus a constraint on population growth, then everything hinges on how the talent and production can be nurtured through productivity gains.

Some leaders use population targets as policy signals, such as the suggestion by former Malaysian prime minister Mahathir Mohamad that Malaysia should have a population of 70 million. It is currently 29 million.

If more than a quarter of the labour force is comprised of foreigners, as in Singapore and Macau, then it is not surprising that there is growing resentment of labour imports. But surely the number that can be imported depends on housing availability, unemployment levels and the quality of the imported labour? That requires a clear view of the growth model by 2041, which needs to be spelt out in more concrete terms.

An intriguing statistic is the low labour force participation rate of 58.8 per cent, slightly lower than Japan's and over 7 percentage points lower than in Singapore. The steering committee suggests that since 1.6 million people between 15 and 64 are "economically inactive", perhaps more can be encouraged to work and to work longer. The view that women who stop work to raise a family are "economically inactive" is neither fair nor gender sensitive.

Certainly, the Hong Kong labour force seems to retire earlier than its competitors, with a 61.7 per cent participation rate for those aged 55-59, compared with 78.3 per cent in Japan. In the 60-64 age range, only 37.7 per cent of our labour force is working, compared with 58.1 per cent in Singapore.

It is very difficult for the public to answer complex questions like "if we extend the working life of the elderly, how can we alleviate the possible adverse impacts on the career prospects of the younger generation?"

First, it is by no means clear that getting older people to put back their retirement worsens career prospects for the young. After all, if the older population remains economically active and has higher spending power, there would be more job opportunities for the rest.

Second, if Hong Kong does not address its total human capital policy with greater clarity, there is a risk that it will lose out in the talent war as every city and country is trying to raise its game to hire the best global talent. Concrete policies and measures will have to be spelt out, sooner rather than later.

For example, the nation's third plenum decision to relax the one-child policy on the mainland will have far-reaching implications on population growth and demand patterns, such as health care, education and services, all of which are opportunities for Hong Kong. Can an ageing population in Hong Kong, essentially a service economy, continue to serve a growing mainland and neighbouring economies effectively and competitively?

Of course, to make good decisions, there could be more technical studies to examine the trade-offs, costs and alternatives. Some tough choices will have to be made and these are political choices. Population policy is all about people, which means it is all about politics.

Andrew Sheng is president of the Fung Global Institute