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Hong Kong’s leader has set out several moves in his policy address that analysts say signal a move away from its free-market ideals. Photo: May Tse

Is Hong Kong finally ending its love affair with ‘big market, small government’? Analysts ask if it is ready to make the right bets for the economy

  • Observers say move as set out in city leader’s recent policy address is long overdue and seen as following in Singapore’s well-trodden path
  • They warn however that results may take decades to yield, with the shift possibly ‘too little, too late’

The new embrace of interventionist strategies for the economy as set out in the policy address of Hong Kong’s leader this week signals the end of a long-held “big market, small government” stance, according to observers who welcome it as a “long overdue” move to inject new stimulus into a Covid-battered economy.

They said it was also important to take such action, seen by many as following in Singapore’s well-trodden path, given the trend towards deglobalisation that would hamper the easy movement of capital and labour with countries more vigilant about protecting their own economic interests.

But they warned that results could take “decades” to yield, the analysts added. Success would require Chief Executive John Lee Ka-chiu to have a precise, visionary industry policy to diversify Hong Kong’s economy for long-term developmental needs.

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“Hong Kong is already among the last advanced economies to deviate from the ‘small government’ strategy that proved a failure in the 1990s. The lack of long-term planning and crisis management are also an outcome of upholding a strong faith in non-interventionism,” Heiwai Tang, an economic professor at the University of Hong Kong (HKU), told the Post.

“Under the current trend towards deglobalisation and disrupted supply chains, doing nothing is certainly not a solution.”

He was commenting on the city leader’s array of aggressive investment-led strategies unveiled in his maiden policy address, which included establishing a local version of Temasek, Singapore’s state investment firm, named Hong Kong Investment Corporation Limited (HKIC).


Breaking down Hong Kong chief executive John Lee's policy address

Breaking down Hong Kong chief executive John Lee's policy address

It aims to promote the development of industries and the economy by consolidating existing funds, including the Hong Kong Growth Portfolio, the GBA Investment Fund and the Strategic Tech Fund established under the Future Fund.

The investment vehicle, led by Financial Secretary Paul Chan Mo-po, will also manage a HK$30 billion Co-Investment Fund, set aside from the Future Fund, to attract enterprises by investing in their business. Other initiatives which appear to mirror Singapore in scope include the setting up of a high-level Office for Attracting Strategic Enterprises or Oases.

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These new interventionist measures that appear to deviate from a long-adopted philosophy of letting the market make the next economic bets has intensified rivalry between Hong Kong and Singapore, observers said.

The city had long consciously adopted a free-market approach to such an extent that “positive non-interventionism”, a phrase coined by Sir Philip Haddon-Cave – who served as financial secretary from 1971 to 1981 – to describe Hong Kong’s style of capitalism, came into popular use.

Hong Kong’s leader has set out aggressive investment-led strategies in his maiden policy address. Photo: Sam Tsang

The key philosophy was upheld in the early years after the city’s return to Chinese rule in 1997. Former chief executive Donald Tsang Yam-kuen was a notable defender of the “big market, small government” principle.

In his maiden policy address in 2005, Tsang said it was a consensus that the role of the administration was to “provide the framework for markets to operate effectively, and to act when there are obvious imperfections in the operation of the market mechanism”.

He also regarded it as a key policy to maintain a capitalist economy and free market enshrined in the Basic Law, the city’s mini constitution, and one purported to enhance the city’s competitiveness.

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HKU scholar Tang said back then, Hong Kong, as a small open economy, benefited from the so-called globalisation dividends and enjoyed robust economic growth, thanks to mainland China’s opening up and being a conduit for free capital and goods into and out of the city.

“But when the economy has suffered from overreliance on finance, real estate, and related service industries, as well as rising inequality together with the lack of upwards mobility for young people, the government may need to change strategy to address all those structural economic problems,” he warned.

Hong Kong was often criticised for being too reliant on its four key industries, comprising trading and logistics, financial services, professional and producer services, and tourism, that together contributed more than half of the city’s gross domestic product (GDP), with finance taking up the lion’s share.

Singapore state-linked investment firm Temasek Holdings manages a net portfolio of S$403 billion (HK$2.2 trillion). Photo: AFP

Interpreting Lee’s blueprint, Lau Siu-kai, vice-chairman of semi-official think tank the Chinese Association of Hong Kong and Macau Studies, said the Hong Kong administration was bidding farewell to the principle of “big market, small government” that relied on “picking the winners”.

“In face of superpowers’ competitions, unilateralism and a likely global recession, the Hong Kong government has no choice but to take bold, aggressive initiatives to retain its competitiveness and make contributions to the motherland,” the Beijing-loyalist said.

He added that the financial hub’s economic strategies must echo the expectations laid down by President Xi Jinping during his visit to Hong Kong on July 1. Xi tasked Lee’s administration to “transform their concepts of governance to balance the relationship between the government and the market” so that a capable government serves an efficient market.

Regina Ip Lau Suk-yee, chairwoman of the New People’s Party, praised the government’s new investment vehicle as “long overdue” and “groundbreaking”.

“This will give the government more flexibility in raising funds for these major infrastructure features,” Ip said.

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But Professor Henry Yeung Wai-chung, a scholar at the National University of Singapore who researched on state intervention and neoliberalism, called Hong Kong’s latest interventionist approach “too little and too late”.

Singapore’s proactive industrial policy started in 1970s, years after it gained political independence in 1965, with the government seeking to diversify from its traditional role as an entrepot. Temasek was incorporated early in 1974.

The city state’s vibrant development in manufacturing and pharmaceutical industries, for example, was the result of explicit, long-term policy planning, Yeung said. The pharmaceutical industry remains an increasingly important component of Singapore’s manufacturing sector, which now contributes to more than 20 per cent of its GDP.

“It could take decades for Hong Kong to yield results,” he said. “Setting up investment vehicles is one thing, but all these must be complemented with proper, parallel industrial policies.”

Finance minister Paul Chan will lead Hong Kong’s investment vehicle. Photo: Yik Yeung-man

Temasek owns and manages a net portfolio of S$403 billion (HK$2.2 trillion) this year, having doubled its value in the past decade. The portfolio comprises shares in companies, start-ups and joint ventures previously held by the Singapore government such as a bird park, a start-up airline, and an iron and steel mill.

Singaporean scholar Yeung said from his interviews with the many Temasek-linked firms, the state-owned fund did not intervene in the direct operation of the management of the firms it invested in.

He said as Hong Kong embarked on this venture, the immediate questions to ask were what the city had to offer, apart from financial incentives, to such foreign enterprises, and how the government could address their needs on labour skills and business industrial linkages.

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HKU’s Tang said while Hong Kong still had its much-cherished label as one of the world’s freest economies, the city government should race against time to study successful examples around the world on joint ventures, and decide promptly what industries to support. The government also needs to quickly acquire the skills and acumen within its own set-up of the fund to make the right strategic bets, according to Tang.

“Any industrial policy needs to be complemented with long-term planning and public-private partnership... [Lee’s government] still has a steep learning curve’,” he said.

Additional reporting by Jess Ma