John Tsang's troubling lack of economic vision for Hong Kong

Regina Ip is concerned that John Tsang's budget lacks any proper explanation of how the government plans to boost growth, or how the city fits into China's evolving economic development

PUBLISHED : Sunday, 02 March, 2014, 3:42am
UPDATED : Sunday, 02 March, 2014, 3:42am

Financial Secretary John Tsang Chun-wah deserves full credit as a tried-and-true custodian of public finance. Since assuming office in 2007, thanks to luck or his tough control of public spending, he has managed to chalk up a surplus every year, often far exceeding his own predictions.

Year after year, he has been saddled with the enviable task of offloading the government's embarrassingly large surpluses by handing the people one-off tax rebates or double welfare payments - the so-called "sweeteners". So much so that this time of the year, guessing the extent of the sweeteners in the annual budget has become the most popular game in town.

Good times are unlikely to last forever, however. With that in mind, in his latest budget, Tsang tried to wean people off the sweeteners and warned of a "structural budget deficit" within 15 years as economic growth slows and public expenditure in education, social welfare and health care is expected to soar. A structural deficit could occur as early as seven years from now, Tsang cautioned, if services were to be enhanced at about 3 per cent in these three areas.

A dyed-in-the-wool bureaucrat schooled in fiscal prudence, Tsang cannot be faulted for sounding the alarm about possible financial armageddon. It may be an inconvenient truth to politicians bent on currying favour with a city addicted to short-term palliatives, but it's a necessary duty of the highest-ranking public official charged with safeguarding public coffers. Every year, it is the same tiresome story of the people, politicians or possibly even the chief executive pushing the financial secretary to spend and Tsang resisting.

This annual drama, however, masks some more fundamental inadequacies of Tsang's stewardship of the economy. After all, the overall economic tsar of the city has a duty not only to prudently manage public finance, but also to grow the economy, to intervene in the markets where necessary and to use the visible hand of the government to restructure, redirect and redistribute resources to achieve greater social justice and harmony.

Tsang falls short in this latter task. In fairness to him, it may simply be too big a task for a public official who has had no other training than balancing the books, and no nobler goal than handing over hefty savings to future generations.

Since 1997, successive financial secretaries have fallen short in two specific areas. First, Tsang has failed to spell out an economic policy positioning Hong Kong for growth in the 21st century. Quite rightly, Tsang kicked off his budget by talking about the importance of enhancing Hong Kong's competitiveness and responded to long-standing appeals from the industry for greater support for research and development. More support is to be given to schools to groom talent in information technology.

All of these things are long overdue and to be welcomed.

Yet the financial secretary owes this city a more comprehensive exposition on the role of the government in guiding and growing the economy, a clear manifesto necessary not just for pedantic reasons but for the purpose of providing both clarity and confidence. Even more troubling is the lack of any reference to the strategy for repositioning Hong Kong in China's evolving economic development. An ongoing issue is the contradiction between separateness and integration inherent in the concept of "one country, two systems". When this bold concept was put forward in the 1980s, it was thought that Hong Kong's separateness - the artificial barriers to the free flow of people, goods, services and capital - would be pivotal to its continued success.

Now this separateness has posed formidable barriers to access to mainland China's market while the increasing integration of the people on both sides of the boundary - despite separate immigration controls - is creating new challenges to the city's management of its limited resources.

In regard to the market access problems arising from Hong Kong's separate customs territory status, a series of agreements under the Closer Economic Partnership Arrangement have helped to overcome but not eliminate the barriers. In regard to the movement of people, the continuous relaxation of restrictions on mainland tourism has boosted domestic consumption and created thousands of jobs, but the high commercial rents, displacement of local enterprises and overcrowding of public space and transport have set off unprecedented, ugly and discriminatory protests against mainland visitors.

In a sense, the authorities in Shanghai and Guangdong face a similar conundrum in establishing special free-trade zones within the mainland. Are they to be separate or integrated with the rest of the hinterland?

If such free-trade areas are fully integrated with the rest of the mainland, they lose the benefits of separateness. But if enterprises within the free-trade zones have no access to the rest of the mainland on a par with those outside the zones, the arrangement has limited attraction.

The implementation of "one country, two systems" in Hong Kong poses great challenges for the local authorities. It is also pregnant with meaning and opportunities for the rest of the nation. That's food for thought.

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