Illustration: Stephen Case
by Andy Xie
by Andy Xie

Hong Kong and Singapore, so similar yet so different – it’s all about housing, money and politics

  • Political power is supreme in Singapore, while money dominates politics in Hong Kong. Why can’t Beijing see how the dreams of Hong Kong youth are being crushed?
  • With housing so out of reach, any spark can trigger uncontrollable riots. Instead of being amazed by city’s turmoil, one should wonder why it took so long
Even as Hong Kong is engulfed in seemingly endless turmoil, Singapore remains as tranquil as its sleepy self ever was. Many Westerners, often quite naïve, tout both cities as paragons of free market economy to criticise their own governments. The two often top their list of the freest economies.

But the stark contrast in their political fortunes tells us that the two cities are very different. In Hong Kong, money dominates politics, while political power is supreme in Singapore. This difference can explain much of what we see.

Hong Kong and Singapore thrive by providing a playground for people from everywhere to take advantage of opportunities elsewhere. Low tax and lax regulation are the main attractions. Inevitably, their labour and asset markets are global. How could their people compete for good jobs or housing against the whole world? Singapore has figured that out, while Hong Kong’s ruling elite refuse to recognise this.
Singapore or Hong Kong’s economic model is largely about arbitraging the inefficiencies, or loopholes, in their larger neighbours. To some extent, money laundering is the core business. It doesn’t take a genius to come up with this economic model. How hard could it be? You just need a powerful friend for protection. Singapore has the United States. China just lets Hong Kong get away with it. It believes that what’s in Hong Kong stays in China anyway. And some powerful vested interests need Hong Kong to get their ill-gotten wealth out.
When the money rolls in, how the spoils are divided determines stability. Singapore recognised early on that locals couldn’t compete against the world for housing.
Private-sector apartment blocks on the waterfront in Singapore. The Singapore government has recognised early on that there needs to be a housing market that caters specifically to locals. Photo: Reuters

The government separated the market between locals and international jet-setters. If property tycoons want to make money in the property market, they can do so in the open market, as long as they share enough with the government. The government builds family-friendly flats for locals at about five years’ income, about similar to the average in the United States.

Hong Kong is ruled by big businesses, mostly property developers. They want to maximise profits by controlling supply. Because international buyers can afford a totally different price from the locals, the developers have no incentive to develop a local mass market, because they can’t have different prices for locals and foreigners. Hence, Hong Kong’s housing market has become a low-volume and high-priced one.
The most bizarre development in Hong Kong’s real estate market is the rise of nano flats. Hong Kong’s developers increase housing affordability by shrinking size. Even these car-sized flats cost about 10 years’ income. It is amazing to see how the Hong Kong government or Beijing isn’t horrified by this.

Hong Kong in bottom half of quality-of-life survey. Beijing is second last

To make matters worse, international competition squeezes the locals’ income. Foreigners are selected from a much larger pool and are obviously more qualified for high-end jobs. Locals are stuck with low-paying jobs. This makes high housing prices more oppressive.

Hong Kong’s average salary was HK$16,791 per month in the fourth quarter of 2018. Based on current property prices, a year’s salary could buy you 12 square feet in Hong Kong. But in New York and Tokyo, a year’s salary could buy nearly 98.7 sq ft and 80 sq ft of property respectively. Given that usable space in Hong Kong is usually less than the stated floor area, Hong Kong property could come close to being 10 times more expensive than in New York and Tokyo.

When housing is so out of reach, young people obviously lose hope. Any spark could trigger uncontrollable riots. Instead of being amazed by Hong Kong’s turmoil, one should wonder why it has taken so long for it to happen. It is because Hong Kong people could absorb more blows than elsewhere before going berserk. The same condition would have set off riots in New York or London a long time ago.

Hong Kong’s market is so different from Singapore’s because businesses are on top in Hong Kong. When businesses are in charge, they want to maximise profit. Competition is supposed to make businesses produce more. But, in a small place like Hong Kong, property developers naturally collude. This is why they hold vast land banks but produce a little bit every year, like gently squeezing a gigantic toothpaste. You know that that toothpaste would last for decades.

On the squeezing of local labour, Singapore has handled it much better than Hong Kong. It has instituted English and Mandarin education, while Hong Kong is stuck with Cantonese education. Most Hong Kong locals cannot join the international pool due to their language limitations. It is truly puzzling to see how Hong Kong has dug such a deep hole for itself. The only explanation is that those in charge of Hong Kong are blinded by greed.
It is truly puzzling to see how Hong Kong has dug such a deep hole for itself. The only explanation is that those in charge are blinded by greed
We should not belittle political issues. There are many that the Hong Kong government should address. But economic issues are clearly driving Hong Kong’s social divide. Twenty-two years after the handover, Hong Kong’s housing market has crushed the dreams for most young people without rich parents. This happens in a city with less land developed proportionally than in Guangdong.
What’s really puzzling is why Beijing doesn’t see this. Someone must have covered it with a magic cloud to stop it seeing something so obvious.

China is proposing the China model of development. Its essence is an autocratic government delivering what people want. If you want to confine people in a box, better make it comfortable. Otherwise, people break out. It is freedom or comfort. Hong Kong better deliver one.

Andy Xie is an independent economist