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Jake Van Der Kamp

THE TWINS OF doom were busy again yesterday through the Insight page on the back of our first section. Shanghai is a winner, Hong Kong is a loser and Guangdong will soon dispense with us; bring on the undertakers.

First up under the headline 'While Hong Kong hesitates, it will slip further behind' was Lau Nai-keung, a Hong Kong delegate to one of Beijing's regular talking shops (CPPCCPPCPC if you must know and do not ask me to spell it out).

First piece of advice to Mr Lau is to read his own copy before sending it in for publication.

In one paragraph he tells us that the Pearl River Delta region is 'losing steam' and in the very next one that it is 'now in the midst of an economic bubble'.

Make up your mind, sir. It is one or the other.

But this is not the biggest failing in his thoughts on how Hong Kong is falling behind. It only shows you that those thoughts were rambling ones.

The big failing becomes evident when you realise that in four columns of text he included only two numbers, a reference to the Fortune 500 and a reference to Hong Kong in the 1990s.

Now I know that newspapers deal in text and journalists have difficulty in operating a calculator. Economics, however, is a trade that deals in statistics and in arguments based on them.

Here we have what purports to be economic analysis and it is entirely devoid of hard fact and statistic or even any reference to economic studies. It is all conclusion and no premise or argument. It is like building the roof of a home and expecting the inhabitants to find the walls and foundations themselves.

So excuse me if I cannot make a detailed rebuttal. There is no detail to rebut, just blithe assertion presented as considered thought.

The only thing I can fix on is Mr Lau's assertion that when Fortune 500 companies think of setting up bases in China, they now look at Shanghai.

No, they do not. I have in front of me a research paper on China's accession to the World Trade Organisation published by Dr Simon XB Zhao, associate professor in the department of geography at Hong Kong University. This study makes it very clear that the first choice is Beijing, not Shanghai.

It shows that 34 Fortune 500 companies had their China regional headquarters in Beijing in 2000. Next in line was Hong Kong with 28 and then Shanghai with 19. It makes sense. Go for the decision centre first, next the financial centre and then cheap rents in the population centre.

Dr Zhao has done some research. It is a practice I recommend to you, Mr Lau.

Next up, directly underneath this submission, we had one from that perennial gloomster, Morgan Stanley's China pundit Andy Xie Guozhong. I do not think his line has ever changed - Hong Kong bad, Shanghai good, duh.

I could actually manage to read it this time, however. The last time we gave him space for his crusade he made it in the form of a tortuous allegory about Rice Island and Fish Island. It was more convoluted than the wiring diagram of a Pentium chip and I lost myself every time I tried to make sense of it. So did the people at Morgan Stanley, I am told.

Mr Xie's line is that we are losing leadership of the Pearl River Delta because our wages and prices are too high and we are, in his words, 'still trying to stop price convergence'.

You will note that he says this from plush offices in Central. What is it with these people who move here to tell us that this is no place to move? If you are right, Andy, then your career here must soon be on the skids. Why don't you put your feet where your mouth is then while you still have the time and move to that paradise across the border?

The flaw in his argument is his wholesale adherence to a discredited 1950s academic theory called factor price equalisation or, alternatively, purchasing power parity. It says essentially that, all things being equal, prices and wages everywhere should be equal too.

Academics have spent the past 30 years scratching their heads as to why the theory just does not work in real life.

It is simple. All things are not equal. The reason that people in Hong Kong are paid much more than people across the border is that they produce much more and the reason in turn that they do so has to do with all those fundamental principles of free markets, civil liberties and the rule of law. They have always made an enormous difference. They still do.

And let me not forget freedom of the press. I would like to see a newspaper in Shanghai publish such tirades against Shanghai. I might even consider Shanghai if one ever does so. I am not holding my breath.



Doom merchants should consider facts and figures