Page 1 of
2 The myth
of a free Hong Kong economy By
Eddie Leung and Pepe Escobar This is the
first article in a three-part report
HONG KONG - Open any standard economic
textbook and look for the definition of a free
economy; its key characteristic is the lack of
government intervention. Less state intervention
means a freer market.
On this standard,
Hong Kong has been hailed as the world's freest
economy for more than two decades. But is this the
whole truth? What if the main sectors of the whole
economy are dominated by a few oligopolies or even
a virtual monopoly?
Let's look at the
hypothetical case of Mr and Mrs Chan, an average
Hong Kong household. Both Mr and Mrs Chan are
senior-level employees of the Hong Kong government
and earn a total
monthly salary of
HK$85,000 (US$10,900).
The Chan family
bought a 800 square feet (74 square meters) flat
from Cheung Kong (owned by the richest local
tycoon, Li Ka-Shing) and has to pay a mortgage of
HK$30,000 a month. The couple subscribes to the
3shop mobile phone service, a subsidiary of
Hutchison Whampoa (also owned by Li) and pay a
monthly service fee of HK$2,000.
Wherever
they go to buy their daily necessities, they use
Park'n Shop (a supermarket chain owned by Li),
where they spend about HK$5,000 every month.
Whenever the Chan family pays their
electricity bill (HK$1,000 per month), it goes to
Hong Kong Electricity (again owned by Li). For
pharmaceutical products, they go to Watsons (again
owned by Li), and they spend HK$2,000.
Let's say the couple wants to purchase the
latest LCD monitor for their son; they buy it from
Fortress (still owned by Li). The couple
subscribes to the paid TV service of NOW for
HK$1,000 a month. This time the service is not
owned by Li himself, but rather Richard Li, his
youngest son.
One might ask: how come that
almost half of what Mr and Mrs Chan earn
contribute to the coffers of Li Ka-shing? Do we
really want to call this the freest economy in the
world, or even a free economy?
A gilded
cage? In every poll, Hong Kong is
invariably ranked as among or the most expensive
city in Asia - usually behind Japanese
megalopolises like Tokyo and Osaka. It's at least
the fifth-priciest in the world to own a home; [1]
the second priciest to rent an apartment; [2] and
Queen's Road Central and Canton Road are the
second costliest for retail space. [3]
This is due to what is informally known in
Hong Kong as a "high land price policy".
The mirror image of this policy is,
inevitably, inequality. Hong Kong boasts some of
the world's top billionaires, such as Li Ka-shing,
the Kwok brothers and Lee Shau-Kee. At the same
time no less than 18% of the city's seven million
residents lived below the poverty line in 2011 -
which was measured as HK$7,000 for a three-person
household per month, according to the Hong Kong
Council of Social Service. [4] About 100,000
people lived in dreaded cage or cubicle homes last
year. [5] This may be a sensationalist approach,
but the photos do tell the story. [6]
For
all the glitz and glamour that dazzle not only
global tourism but also, especially, mainland
Chinese tourists, the median monthly income of a
local household with four members is approximately
HK$14,000, according to the Hong Kong Council of
Social Service.
After a lengthy battle, a
new minimum wage was approved. There were rivers
of speculation on what would be a decent number -
from HK$30 to HK$35 an hour. The approved figure
in May 2011 was a paltry HK$28.
After the
2008 global financial crisis, Hong Kong's much
vaunted economic recovery is essentially based on
revenues from Chinese tourism and property
investment. A trickle-down effect is not exactly
in place; it's more like "rental-push" inflation,
as Hong University researchers call it. Mainland
Chinese gobble up at least 40% of new home sales.
No wonder; property investment qualifies as the
easiest path to get a much coveted Hong Kong
resident card.
The land of the
free For the Heritage Foundation is a
matter of routine to rank Hong Kong as the freest
economy in the world - with a whopping overall
score of 89.9 compared with a world average of
59.5. [7] This Milton-Friedmanesque paradise is
extolled for "small government, low taxes and
light regulation".
Much is made of
"business freedom" and "labor freedom". True - you
can open a business in three days; you just need a
Hong Kong ID, a form and US$350. But depending on
the business, you will be squeezed by monopolies
and oligopolies in no time. And if you are
"labor", chances are in most cases you can only
aspire to some sort of glorified slavery.
Heritage researchers may be excused for
losing the plot between dinners at the Mandarin
Oriental and partying in Lan Kwai Fong, both
favored drinking and dining spots near the central
business district. Behind all those luxury malls
and the best bottles of Margaux, real life Hong
Kong has absolutely nothing to do with a free
economy encouraging competition on a level playing
field. It's more like a rigged game.
The
dark secret at the heart of Hong Kong is the
unmitigated collusion between the government and a
property cartel - controlled by just a few
tycoons; the Lis, the Kwoks, the Lees, the Chengs,
the Pao and Woo duo, and the Kadoories (more about
them on part 2 of this report). These tycoons and
their close business associates also happen to
dominate seats on the 1,200-member Election
Committee that chooses Hong Kong's chief
executive.
The first thing to keep in mind
is that for any Chinese, land is wealth. That's
sacred. And nowhere else this is more sacred than
in Hong Kong.
Alice Poon is - or used to
be - an insider; she was a personal assistant to
Kwok Tak-seng, the legendary founder of Sun Hung
Kai Properties, Hong Kong's giant developer. She
also worked for the Robert Kuok group, responsible
for land and property evaluation and acquisition.
She now lives in Canada and blogs at the Asia
Sentinel. [8]
In Land and the Ruling
Class in Hong Kong (Enrich Professional
Publishing, Singapore, 2011), Poon demonstrates
how the Heritage Foundation's hard-on for
government laissez faire is in fact mixed with an
extremely non-competitive business environment. It
all boils down to who really runs the show in Hong
Kong; a group of cross-sector corporate giants
controlling the property market, electricity, gas,
the public buses and ferries, and the supermarkets
(see them in detail in part 2 of this report).
The common denominator is that virtually
all of them started with property - and then
progressively gobbled up utility and public
service companies.
Here are just a few
examples of this cross-sector frenzy.
Cheung Kong Holdings buying Hutchison Whampoa
in 1979 - a monster conglomerate involved in
myriad businesses, among them the Park'n Shop
supermarket chain.
Sun Hung Kai Properties controlling the
Kowloon Motor Bus operator.
Lee Shau-Kee accumulating shares in The Hong
Kong and China Gas - the town gas monopoly -
before the company was listed in 1981.
Hutchison Whampoa buying Hongkong Electric -
one of the two electricity duopolies - in 1985.
New World Development being awarded the Hong
Kong public bus routes franchise in 1998 and
buying Hong Kong Ferry in 2000.
The Pacific Century Cyberworks (PCCW) takeover
of Hong Kong Telecom in 2000, masterminded by
Richard Li, the younger son of Cheung Kong
Holdings chairman Li Ka-shing, the wealthiest
Chinese in the world.
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