Immigration and reclamation won't raise living standards

Our financial secretary wants to import more workers and create land, but Singapore's experience shows that will not make Hongkongers richer

PUBLISHED : Tuesday, 18 February, 2014, 4:34am
UPDATED : Tuesday, 18 February, 2014, 10:36am

John Tsang obviously doesn't read the South China Morning Post.

That's a shame, because if he did, Hong Kong's financial secretary might just save himself some embarrassment.

In his latest weekend blog posting, Tsang compared Hong Kong's economic performance unfavourably with Singapore's.

He wrote that between 2003 and 2012, Singapore's gross domestic product per head grew at a robust average rate of 6 per cent a year. Over the same period, Hong Kong's per capita output expanded at a relatively meagre 4 per cent rate.

Singapore, he claimed, had achieved its enviable growth by adding some 1.2 million immigrants to its workforce while increasing its land area by 30 square kilometres through massive reclamation projects.

In contrast, Hong Kong is suffering dire shortages of both labour and land, Tsang argued; shortages which threaten severely to handicap the city's future economic growth.

In short, Tsang implied that Hong Kong's people had better get behind the government's immigration and reclamation plans pretty damn quick, or face a future of penury.

If only he read a little more widely, he would see the gaping holes in his argument.

Yes it is true that according to the bald figures, over the past 10 years Singapore's gross domestic product per capita has grown faster than Hong Kong's when measured in US dollar terms, as the first chart shows.

But Singapore's apparent outperformance was entirely due to the Singapore dollar's 40 per cent appreciation against the Hong Kong dollar over that period.

That's important. Currency appreciation might lower the price of imported goods, but it does nothing to reduce the cost of non-traded goods and services, like housing.

As Monitor has pointed out before, if you look at real GDP per capita in local currency terms, you find that Hong Kong has averaged a 3.9 per cent growth rate over the past 10 years, Singapore just 3.6 per cent. So on Tsang's GDP per capita indicator, Hong Kong has actually outperformed Singapore.

However, as readers of Jake van der Kamp's column will know, GDP per capita tells you nothing about how well or badly off ordinary people really are.

As Jake pointed out in these pages just a couple of weeks ago, if you use household consumption spending as a proxy for household income, then Hongkongers are considerably better off than their Singaporean peers.

Jake noted that Hong Kong people spend an average of US$24,000 a year each, while Singaporeans can manage only US$21,000.

Actually, I'd argue that Jake exaggerated Singapore's household spending. Believe it or not, stuff is more expensive in Singapore than Hong Kong.

If you apply the World Bank's formula to adjust for the differences in purchasing power between the Hong Kong and Singapore dollars, you find that whereas Hongkongers spent US$24,000 a head in 2012, their opposite numbers in Singapore splashed out the equivalent of just US$16,000.

What's more, over the past 10 years the differential has widened in Hong Kong's favour. As the second chart shows, in 2003 the average Hongkonger was 20 per cent better off than the average Singaporean. In 2012 he or she was nearly 50 per cent better off.

Clearly, while all of Singapore's immigration and reclamation might have inflated official egos, it has done little or nothing to boost ordinary people's living standards.

There's little reason to believe it would achieve any more in Hong Kong.

Tsang's eagerness to expand the city's labour force and land area merely exposes the government's twin obsessions with GDP - a measure even the economist who invented it stressed is flawed - and pouring concrete.

But if he read more, he would realise that.

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