Hong Kong needs radical social and economic reform. Let’s start with breaking up the property cartel

Even if Carrie Lam were to quit as chief executive, the anger that led to the mass protests would not die down as long as the local economy is run by cartels, especially in the housing sector. Shock therapy is urgently needed

Cheah Cheng Hye

Published: 6:30am, 22 Jun 2019

Why you can trust SCMP

Hong Kong’s economy has long thrived on a formula of free competition, low taxes and a level playing field. During the economic miracle in the second half of the 20th century, there were few objections to this old style of capitalism, which, for all its injustices, delivered rapidly rising incomes to the general population.

But that was then, and now the situation is not the same. As its economy plateaus and Hong Kong as a whole becomes less competitive in global markets, we see the collateral damage caused by a system that put growth and the pursuit of profit above all else.

Hong Kong’s economy is dominated by cartels, with the provision of all sorts of services and goods subject to oligopolistic arrangements, the product of a capitalistic jungle where the strongest survive and eventually dominate.

The rich-poor gap is among the world’s highest. While the elite continue to pile up wealth, ordinary Hongkongers generally have not improved their well-being, taking into consideration such adversities as chronic overcrowding, environmental degradation and deteriorating civic pride.

There is no alternative to social and economic reforms in Hong Kong. In fact, the frustrations of ordinary Hongkongers – that they no longer have a stake in the success of the system – is the underlying cause of the massive street protests that have rocked Hong Kong this month, although the immediate cause is the government’s attempt at legislation allowing suspected criminals to be extradited to the Chinese mainland.

Social turmoil won’t go away even if Chief Executive Carrie Lam Cheng Yuet-ngor steps down. Indeed, it is a pity that, since 1997, we’ve seen a succession of chief executives, each too distracted by immediate problems and serving for too short a period to focus on long-term solutions.

The way forward is to introduce a more enlightened form of capitalism, still pro-business and pro-free-market, but fairer, more inclusive and more sustainable.

In today’s Hong Kong, small and medium-sized businesses and entrepreneurs – meaning local Hong Kong players – often find it difficult to establish themselves against entrenched industry leaders, consisting generally of the Hong Kong super-rich and mainland Chinese and foreign companies.

Hong Kong’s slavish commitment to a level playing field has come down to this – it pits little guys in competition against established big guys, in an economy that is no longer growing fast enough to accommodate all.

While such a set-up may facilitate corporate profits, it leaves ordinary people feeling left out and hopeless. It also reduces competition and stifles entrepreneurship, which is exactly what capitalism is not supposed to do.

Hong Kong authorities can draw on studies and experiences from all over the world, as social unrest and inequality is a global phenomenon, and governments everywhere are looking for answers.

Protesters have remained in Tamar despite the indefinite suspension of the extradition bill and Carrie Lam’s apology, indicating they are not yet satisfied. Photo: Dickson Lee

In short, Hong Kong’s government needs to be more interventionist. It needs to unapologetically improve the access enjoyed by local people to training, employment and commercial opportunities.

It needs to be much tougher on monopolistic practices. (There may be a few monopolies that can be justified because their scale is critical to maintaining Hong Kong’s global advantage, but very few.)

We need more deregulation and emphasis on consumer rights. Fiscal reform is required, starting with a critical review of the so-called low taxation regime.

Will extradition turmoil dampen Hong Kong’s property market?

Appearances to the contrary, the typical Hong Kong family is subject to high taxes, in the form of indirect taxation arising from exorbitant property prices, fuelled partly by high land prices.

We urgently need to break up the real estate cartel. Because so much wealth in Hong Kong is tied to real estate, the business lobbies tied directly or indirectly to property development represent an all-powerful vested interest that has resisted reform, both before and after the end of British colonial rule in 1997.

Shock therapy is recommended. The rules of the game have to be redrawn to open up the field to many more formats and players, increasing competition and giving the public access to a much wider stock and range of public and private housing.

On the supply side, plans for massive land reclamation must be accelerated and we need to bite the bullet on country parks, converting part of their massive space into housing.

Our thinking has to take into account the national push to promote the Greater Bay Area, with expensive transport links newly put into place. A precedent has been set with the mainland, allowing Macau to make use of neighbouring Zhuhai’s Hengqin island.

The Greater Bay Area can play a key role in the new investing age

Why shouldn’t the mainland authorities also lease land in neighbouring Guangdong for use by Hong Kong? Such land would come under Hong Kong’s administration, and could be used for high-quality public housing estates.

Or Hong Kong could relocate some of its institutions of higher learning, health care facilities or its container port to the new area.

Hong Kong has the necessary financial resources to undertake reform. With US$38,000 in annual per capita income, close to that of France, it now makes sense to focus on making its population happy, rather than emphasising growth for growth’s sake.

Not to forget that Hong Kong has built up huge reserves, representing the savings of generations, managed by the Hong Kong Monetary Authority.

The money belongs to the people of Hong Kong and is intended to fight emergencies, which describes the situation today. Simply, reforms can be expensive, and it’s good to know we have a piggy bank to handle temporary disruptions.

Hong Kong must defend its values to forge an economic future

If properly consulted, it wouldn’t be in Beijing’s interest to oppose such reforms. On the contrary, mainland China has benefited from social and economic changes transforming the country in just two generations.

China badly wants Hong Kong to be stable and prosperous. Only 28 years remain before Hong Kong’s status as a special administrative region expires. We must act decisively to give Hongkongers a significant stake in their community, so we can face the challenges of 2047.

Cheah Cheng Hye is co-chairman and co-chief investment officer of Value Partners Group, an asset management firm in Hong Kong. He is also an independent non-executive director of Hong Kong Exchanges and Clearing Ltd. This article reflects his personal opinion only

Post