Hong Kong’s nearly HK$2tr fiscal reserves should be spent, to benefit the people who own them
It’s the Hong Kong people’s money – but is it wise or insane to hold onto so much of it?
Thanks to land purchases made largely by mainland Chinese developers, who have been paying eye-watering prices, Hong Kong’s latest budget forecast total fiscal reserves to stand at HK$952 billion (US$122.52 billion) by the end of March 2018.
Add in various piles of cash the government has scattered about and it’s closer to HK$1.8 trillion, and none of this includes reserves held separately by the Hong Kong Monetary Authority.
Sir Hamish Macleod, who served as Hong Kong’s financial secretary from 1991-95, used to refer to a surplus of 18 months’ spending as the “golden rule”.
So how much in reserve is enough, or too much? Is keeping it lying around unspent the best use of it? What would you spend it on? And whose money is it, anyway?
The answer to the last question is easy – it’s the Hong Kong people’s money. The others are harder to answer.
Building large things is one way to spend bundles of cash, though not without controversy.
Hong Kong already has several major infrastructure projects underway: the Hong Kong-Macau-Zhuhai bridge, the Kai Tak re-development, a third runway at Chek Lap Kok airport and the West Kowloon Cultural District, not to mention the link to the mainland’s high-speed railway network.
Plus there are plans to reclaim artificial islands to link Hong Kong Island to Lantau, put housing on brownfields and even in areas of country parks and, most recently, plans to build a museum to be a permanent home for Beijing’s dynastic treasures.
Mike Rowse, former director general of Invest Hong Kong and a now-retired long-time civil servant is adamant fiscal reserves are much larger than needed.
“You put a bit aside and the rest should be used to address Hong Kong’s problems and issues,” he says. He’s not alone
Entrepreneur Allan Zeman, chairman of Lan Kwai Fong Group, calls the size of the reserves “insane” for a city this size.
He says “a year and a half” of recurrent spending would be reasonable, but “the big problem... is that money was not spent, not put back into the economy or, when it was at the end of the year, it was put back in the wrong way.”
Zeman sees growing populism not only here but worldwide, and says this – along with an unprecedented period of 15 years of low interest rates causing asset inflation – have widened the divide between the haves and have-nots.
Zeman also lays blame squarely at the doorstep of the former financial secretary John Tsang, who stepped down to challenge Carrie Lam for the top job in the recent chief executive race.
“We’ve had a financial secretary who’s been with us for over nine years, who came in with very low budgets and always outperformed the market,” says Zeman.
“Why? The majority of money came from land sales, which we’re always underestimated, and because of inflation just kept going up. And so what happened was that you have many parts of Hong Kong which began to suffer.”
Connie Bolland, managing director and founder of independent economic analyst firm Economic, Research and Analysis, says there’s no simple answer to the question of how much is enough.
“The Hong Kong government has this fear that because it is open and subject to a lot of forces, that some of these surpluses may not necessarily be sustainable.
“But even in very bad times,” she adds, “we have the dollar peg, so if you are disciplined ... we are well covered.”
Bolland says the government need not spend the money quickly but spread it out over one or two decades, underwriting the cost of an impending problem facing the city: providing care for a rapidly ageing population.
Increased social spending is also on the mind of Rowse. “I once calculated out an old-age pension scheme. I would start it at maybe 85, which is the average life expectancy now. When you see how it works out in practice, the age could be brought down.”
“The fact that we are the only mature economy without some kind of old age pension is ridiculous.
“We keep treating Hong Kong’s finances as if Hong Kong were going to implode tomorrow,”
Rowse says. “That’s silly. We’re a functioning city. Our finances are better than New York or London. We’re not going to disappear tomorrow.”
Asked for his top priorities for spending a good portion of the robust reserves, Zeman lifts three fingers.
“One, land acquisition, because housing is a huge problem; education, because I believe we’ve been let down in the past by the education policy; and creative industries: look at South Korea, the entertainment industry there really has became the bellwether for Asia,” he says.
This is the excerpt of an article published in the April issue of The Peak magazine, available at selected bookstores and by invitation.