Tung Chee-hwa's legacy as a victim of bad timing and muddled thinking is darkened by a record of ineffectual leadership over the economy that some say exacerbated the pain of the post-bubble collapse. The promise of affordable housing, implicit in the pledge in his first policy address to construct 85,000 flats a year, was doomed from the start as it placed the government squarely between conflicting land policies at a time of fast-deflating asset prices. Mass home ownership may have been a noble goal, but land-sales revenue was the biggest single item in the government's tax-revenue stream, says Peter Churchouse, director of LIM, a real-estate investment fund. 'By implication, he wanted to see housing prices come down,' Mr Churchouse says. 'To do that you need to make it affordable, and you can either pay for people to own their home, or you implement polices that bring prices down.' Research by his firm shows about one third of the population could realistically afford to own homes at the time, far short of Mr Tung's pledge to make ownership affordable to 70 to 75 per cent. In order to get anywhere near the mark, he needed to dismantle the land-auction system and reorient the economy onto an alternative tax base. The problem was he never pushed for reform and, if anything, looked more towards the colonial-era land auctions to sustain the growing gap in revenues. 'There is an inherent conflict between fiscal issues ... his objective of affordable housing was an inherent conflict that he never even seemed to recognise,' Mr Churchouse says. 'The policy has been to restrict the [supply] of land to keep [the price] high and taxes low. Mr Tung has continued that policy without any real understanding of the implication. I don't think I've seen anything inside the administration that wants to change that.' He concedes Mr Tung's efforts to drive change were hampered by forces beyond his control in the form of the Asian financial crisis, but says the government is still dependent upon the inflated land pricing system - more than seven years after he assumed power. As the Asian crisis deepened, Mr Tung failed to clarify the housing policy - a blunder which clouded the market outlook and contributed to the 60 per cent decline in housing prices, Mr Churchouse says. With the high-land-premium system, he says there has been little progress in boosting home ownership, as about 60 per cent of the population now live in public housing estates in 'the worst [living conditions] in the world for countries of comparable GDP'. CLSA chief economist Christopher Wood says the dice were loaded against Tung from the beginning as he inherited a shrinking economy with interest rates effectively set by the United States owing to the fixed-currency regime. 'Mr Tung has had to live through a difficult deflationary adjustment given the nature of the currency board system which prevented the 'easy' way out via devaluation,' he says. 'He was asked to perform what was always going to be a difficult job. His political masters are in Beijing, not the Hong Kong electorate.' Public criticism ultimately forced Mr Tung to quietly abandon the housing pledge, as he changed course in the face of calls from the middle class. Mr Wood, however, applauds Mr Tung's stewardship over the banking system, which showed stress but no fractures during the property implosion. 'Since the Asian crisis Hong Kong has developed its niche role as an entrepot centre and financial centre for China. It shows every sign of being in the early years of a new boom while it will be many years before Shanghai replaces Hong Kong as an international financial centre.' Dr Eden Woon Yi-teng, chief executive of the Hong Kong General Chamber of Commerce, gives Mr Tung a thumbs-up rating, saying the chief executive oversaw the branding of Hong Kong as Asia's world city, forged closer ties with the mainland and guided the economy through difficult times and into a period of stable growth. 'He did steer Hong Kong through the transitions pretty well, [and] the way we do business and the way we live are pretty much the same [as in the pre-handover period],' Mr Woon says. However, he says Mr Tung has left a complex legislative agenda for his successor, with much to be done to boost competitiveness. Issues tabled, but never seen through, include privatising the airport, merging the two public railways, listing the Link real estate investment trust, broadening the tax base and overhauling the civil service. Corporate governance activist and Webb-site.com editor David Webb says Mr Tung erred in the US$15 billion intervention in the stock market, in August 1998, which ended with the government controlling 15 per cent of shares listed on the Hang Seng Index. The move was designed to deter speculators, but Mr Webb says the effect was 'to forever destroy Hong Kong's reputation as one of the few Asian governments which does not manipulate or intervene in the stock market'. He says the assumption the government will intervene in times of trouble has distorted the market. 'Now, whenever stocks are in a rut, there is a public assumption that the government will at some point intervene, and this assumption itself distorts the market,' he says. Another crucial blunder, he says, was the granting of the Cyberport project to the Li family without public tender, on what he says was a false pretext the project was technology infrastructure rather than residential. Mr Webb says Cyberport is part of a broader pattern of the Tung administration's bias towards the interests of tycoons at the public's expense. Key reforms to the stock market and a competition law that would outlaw price fixing and the power of cartels languished under his watch. Market July 1, 1997: Tung takes office, with stock market and property prices at record hights Late 1997: Asian financial crisis sends market and property prices into tailspin. Bird flu strikes August 1998: Government ploughs US$15 billion into shares to prop up the market after attacks by speculators. The Tracker Fund was established the following year as a step towards disposal October 1998: $5 billion fund set up to aid technology start-ups June 1999: Reinterpretation of right of abode November 1999: Disneyland project announced July 1, 2002: Tung returned for a second term December 2000: MPF system in operation March 2003: Sars outbreak: 299 people die; tourism industry devastated June 2003: $100 million Harbour Fest fiasco July 1, 2003: More than 500,000 people protest against anti-secession laws. The march is interpreted as a sign of public anger at the administration's policies March 2004: Beijing rules out universal suffrage and a second reinterpretation of the Basic Law July 1, 2004: Many thousands march demanding universal suffrage to elect Tung's successor in 2007 December 20 2004: President Hu Jintao gives Tung a public dressing down in Macau January 12 2005: Tung makes an unprecedented public papology for his 'shortcomings and inadequacies' February 28 2005: Tung appointed to Chinese People's Consultative Conference Property October 1997: Tung announces plan to build 85,000 public flats a year as part of strategy to stablise overheated property market. He drops that policy in 1998 but does not make this public until 2000 November 2002: Suspension of Home Ownership Scheme announced June 2003: Cyberport project awarded to PCCW without a tendering process 2004: Central-Wan Chai bypass protests. Court rulings postpone project December 2004: Destruction of Hunghom Peninsula development cancelled after protests December 2004: Link Reit listing postponed after court challenge 2004-05: Controversy over single developer for West Kowloon Cultural Centre
