HONG KONG'S fug-filled skies are not only sparking health concerns among residents, they are hurting the city's competitiveness. Companies are being forced to offer more money to attract top talent to work in our increasingly polluted city. United States investment giant Merrill Lynch recently warned that air quality in the territory was now regularly so poor that the city's long-term competitiveness was under threat. The company's unusually blunt statement reinforces the findings of a survey that Hong Kong's attractiveness has slipped dramatically as a place where expatriates want to work and live. Additionally, the cost of attracting expatriates to work in Hong Kong is rising. According to the survey by ECA International, the world's largest membership organisation for human resources professionals, Hong Kong has dropped to 32nd place in the latest Location Ranking Survey on expatriate living conditions. Despite high ratings for health facilities, a low crime rate and advanced infrastructure, Hong Kong has plummeted 12 places from the number 20 position it held in 2005 because of pollution levels. The ECA said worsening air quality created by Hong Kong vehicles, power producing companies and the increasingly industrialised Guangdong province that affects the city were the main reasons for the fall in Hong Kong's location ranking. Ian Ridgewell, managing director for ECA International, said that as a result of Hong Kong's deteriorating air quality, the ECA was advising client companies to consider offering expatriate employees higher location allowances, otherwise known as a hardship allowance. Some companies were already offering more. 'Previously, if expatriates were moving from one Asian location to another we would not recommend offering a location allowance. However, this is no longer the case,' Mr Ridgewell said. A location allowance is usually based on the existing salary and the terms and conditions at the employee's home base. In the past, expatriate employees from Europe were offered about 10 per cent above their home-base salary. The ECA is now recommending that this be increased to between 15 per cent and 18 per cent. In some cases, top-notch European employees are already benefiting from this increase. 'At the moment the problem is not that obvious, but it is becoming a growing concern and will get to a point when companies will say they are not going to carry on paying more,' Mr Ridgewell said. It would be in everyone's interest if Hong Kong could be seen to be measurably improving the quality of the environment. Hong Kong's biggest rival, Singapore, tops the Location Ranking Survey list. Kobe is the only other Asian city to make it into the top 10, fifth behind Sydney, Melbourne and Canberra. Rounding off the top 10 are Auckland, Copenhagen, Vancouver, Wellington and Basel. 'Externally, high pollution levels is one of the black marks against Hong Kong,' said Lee Quane, general manager of ECA International (Hong Kong). While evidence is still largely anecdotal, everybody seems to know someone who is leaving or has left, or is intending to leave Hong Kong because of the high levels of air pollution. 'Some people will tolerate high pollution levels in Hong Kong because of its great vibrancy and transparent business environment. On the other hand, those with a family given the choice of relocating to less polluted places may be tempted to leave,' Mr Quane said. This latest Location Ranking Survey is the largest, with 257 locations evaluated worldwide. Each location is assessed on climate prevalence such as pollution, impact of natural disasters, health facilities and risks, transport, the quality and availability of goods and services, accommodation standards, education, recreation, crime and socio-political climate. Pollution has become a key political issue in Hong Kong as smog levels have risen to often dangerous levels. Poor air quality reduced visibility to less than 1km on more than 50 days in 2005. International chambers of commerce in Hong Kong have issued warnings that their member businesses were pulling out of the city or deciding not to locate here because of the health implications for their families and staff. According to the University of Hong Kong, foul air cost Hong Kong HK$2.34 billion in medical bills and lost productivity in 2005, a 3.8 per cent increase from 1995. The university calculates that Hong Kong's air contains almost three times more particles of soot and other pollutants than air in New York and Paris, and more than double the amount in London. The International Monetary Fund (IMF) has warned that poor air quality in Hong Kong and the Pearl River Delta could undermine Hong Kong's competitiveness. The IMF's concerns are being reflected in the difficulties that the territory is facing in attracting and retaining high-skilled workers. The IMF said that while there was broad support for the Hong Kong government's growing recognition of these concerns and recent efforts to address them, many people felt that initiatives to reduce cross-border pollution were urgently needed, and that greater emphasis could be placed on market-based mechanisms. The good news is that there is a push to improve the situation. The Council on Sustainable Development has reported that Hong Kong's air pollution could be cleaned up for HK$51billion if a series of drastic measures proposed by the council were implemented immediately. The 70-page Report on Better Air Quality, released by chief secretary Rafael Hui Si-yan, estimates that it would cost HK$28.1billion if the same 23 options were adopted gradually. The measures are aimed at reducing emissions of pollutants by the city's power generators, vehicles and factories. The HK$51billion covers one-off costs for installing flue-gas desulphurisation units at power stations and fitting catalytic converters on heavier vehicles. choke on this Hong Kong's ranking on the global ECA International Location Ranking Survey has dropped from 20 to 32 due to high pollution levels. For the first time expatriates from other Asian countries are being paid a hardship allowance to work in Hong Kong because of air pollution. Top-notch European employees are being offered between 15 to 18 per cent hardship allowances, up from 10 per cent, because of Hong Kong's high pollution levels. The International Monetary Fund has warned that poor air quality in Hong Kong and around the Pearl River Delta could undermine Hong Kong's competitiveness.