HIGH staff turnover, the falling quality of job applicants and 'relentlessly rising labour costs' are taking a heavy toll on Hong Kong and threaten its competitiveness, a senior banker says. Filling a vacancy with the right staff was becoming increasingly difficult, especially in an economy where nine out of 10 jobs were service-related, said Paul Selway-Swift, executive director of Hongkong Bank. He was speaking at the 15th annual conference of the Hong Kong Institute of Personnel Management, which was sponsored by the South China Morning Post. 'Part of this problem is demand, of course,' he said. 'There are more companies hiring. But part is also supply. While emigration is expected to increase, quality appears to be on the decrease too - and this has to set off warning bells. 'If standards continue to drop, our competitive edge will drop too, and economic growth will slow. We must - and we should - keep pressure on government to upgrade education standards throughout the territory.' The territory's employers and human resources operations face serious challenges if they expect to maintain their performance, despite last month's news that Hong Kong is one of the most competitive economies in the world. 'That, however, was last month. This month we are already worrying about whether we can remain competitive. Having finally received recognition for our achievements, we wonder whether we can sustain them,' Mr Selway-Swift said. 'There is good reason to worry. Hong Kong companies are trapped between a rock and a hard place. On one side they face an acute labour shortage, and on the other the pressure of relentlessly rising labour costs. The costs are driven up by the shortage which then feeds on itself to inflate wages. Once set in motion, this inflation spiral goes higher and higher.' The inflationary pressures had been around for years and were likely to dog the territory for years to come, he said. Churning also added costs. An average 50 per cent of staff in Hong Kong quit within six to nine months of being hired, Mr Selway-Swift said. 'Today in Hong Kong it can often take $50,000 or more to recruit and train each replacement for an entry-level job.' The resultant bills could run into millions of dollars. 'In our economy, which is increasingly dependent on service industries, the hidden costs and lost opportunity costs of this rate of staff turnover are staggering,' he said. Employers could invest in technology to improve productivity, re-engineer operations, import labour and export jobs, but the human resource function was critical in all these things, Mr Selway-Swift said, firing a broadside at the level of human resource management in the territory. Not enough human resource managers had the skills needed to brief management on necessary staffing levels, appropriate pay packages, retention and recruitment of staff, he said. 'In fact, many human resource managers do not appear to be part of this equation at all. They're on the wrong team. Instead of offering professional advice to their chief executives or senior managers, they act more as cheerleaders for staff demands. 'Instead of managing payroll costs and manpower demands, they operate as quasi union leaders. When the time comes to determine annual wage levels, their set formula is to propose cost-plus-inflation plus a bit more to deter staff from defecting. 'This won't do. Hong Kong is the primary financial and service centre for Southeast Asia. We compete with some of the largest and most professional organisations in the world. We need human resource managers [who are] resourceful and professional enough to match what the world, not to mention our own economy, can throw at us.' Legislative Council member Christine Loh told the conference that Hong Kong's real competition was China rather than traditionally cited rivals such as Singapore. She said the elite in China could swamp Hong Kong. The territory should start to work out what it needed to do to retain its cutting edge. To do this, it needed to invest in its young people. Language skills needed honing, she said, citing the example of the Netherlands, whose people were frequently multilingual. 'Perhaps that's understandable - they're a small trading country on their own,' she said.