Page 2 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
The bottom line is that major
utilities and public services are in the hands of
just a few players; the Lis of the Cheung
Kong/Hutchison group; the Kwoks of Sun Hung Kai
Properties; the Lees of the Henderson group; the
Chengs of New World Development; the Pao and Woo
of the Wharf/Wheelock group; and the Kadoories of
the CLP Holdings group.
Today, there are
49 constituent companies in the Hang Seng Index,
which represent nearly 70% of total capitalization
of the Hong Kong Stock Exchange. Taking away
heavyweight Chinese state-owned enterprises such
as China Mobil, China Unicom, PetroChina, Sinopec,
ICBC, China Construction Bank, Bank of
China, China Life, etc
(which account for more than half of the total
capitalization), and Britain's HSBC, the Hang Seng
Index is dominated by local companies of property
development tycoons such as Li Ka-shing's Cheung
Kong Holdings, Hutchison Whampoa and Power Assets;
the Kwok family's Sun Hung Kai Properties; Lee
Shau Kee's Henderson Land Development and Hong
Kong and China Gas; as well as other property
developers such as Sino Land, New World, Hang Lung
Properties, and Warf (Holdings).
This
amounts to roughly six families controlling
virtually all of Hong Kong's economic sectors. And
it will stay like this. The Chinese tradition of
passing the family fortune from generation to
generation amounts to what Poon derides as an
"antiquated feudal system".
There's
nothing "free market" about Hong Kong's major
utility/public service companies. On the contrary;
they are monopolies or oligopolies. The two
supermarket chains - Park'n Shop and Wellcome -
have no less than 70% of market share. City Super
is owned by Japanese - but that's an upscale
brand, with only a few locations, and out of reach
for most Hongkongers.
Park'n Shop and
Wellcome consolidated their dominance essentially
by pricing smaller companies out of the market;
they could easily afford it. Park'n Shop is the
retail/food division of A S Watson, which is part
of the Hutchison/Cheung Kong conglomerate.
Wellcome is part of the Jardines/Hong Kong Land
group. So no wonder, for instance, a Park'n Shop
outlet is in or around every building developed by
Hutchison or Cheung Kong.
A measure of
their power is that France's Carrefour - the
second-largest global supermarket chain - tried to
break into the Hong Kong market in 1996. They gave
up four years later.
Born to lose
We should be back again to a Chinese
maxim: land is power. All the conglomerates
controlled by Hong Kong tycoons are fattened on
owning land. The local government is the sole
supplier of land. So no wonder it keeps a vested
interest in the property market - and that's a
huge understatement - as it pockets fortunes from
land sales and premiums on so-called "lease
modifications".
As for the maxim that
prevails across the city's property market cycles,
it's always been the same: "Buy low and sell
high".
This doesn't work for the public
good - to say the least. A good example is the
Guangzhou-Shenzhen-Hong Kong express rail link,
which is bound to be the most expensive in the
world, costing US$8.6 billion - partly because of
choosing to build the terminus at West Kowloon.
There was a cheaper and perhaps better alternative
- to build the terminus at Kam Sheung Road on
MTR's West Rail. But it was overruled because of,
as some critics suspected, shady land speculation
interests in West Kowloon.
The whole
situation is in fact inherited from the British
colonial era, when the British hongs such as
Jardines, Hong Kong Land, Wheelock Marden, Swire
and Hutchison controlled Hong Kong's economy - and
prime urban space. This Holy Grail was beyond the
reach of Chinese companies.
But then, from
the late 1960s up to the mid-1970s, the hongs
started to get rid of their land and property as
China plunged into chaos during Mao's final years.
At the same time, Cheung Kong, Sun Hung Kai, New
World Development and others started using the
stock market to raise funds.
But it was
only by the mid-1980s that British companies were
finally gobbled up by the likes of Li Ka-shing and
Y K Pao. When the Sino-British Joint Declaration
was signed in December 1984, sealing the 1997
handover, they finally hit the jackpot.
The champagne popped all around Paragraph
4 of Annex III of the Joint Declaration; it
limited the amount of land that could be granted
in Hong Kong in any one year to just 50 hectares.
That also paved the way for a Land Commission,
which could grant extra land when the ceiling was
attained. Essentially this set up guaranteed that
land in Hong Kong would always be in short supply
- thus it would always be expensive. Ergo, the
perennially high property prices.
The
mantra of the previous two Hong Kong
administrations under "one country, two systems" -
by Tung Chee-Hwa and Donald Tsang - was not to
deviate from a high land price policy; keep a
tight land supply; and postpone the introduction
of a competition law (more on this on the second
part of this report). There's no evidence this
would change much under new Chief Executive C Y
Leung.
The absurdly high rents in Hong
Kong - derived from high land prices - hurt most
of all local businesses, and prevent Hong Kong
from attracting more foreign investment. If
Heritage Foundation researchers didn't get it,
they were probably researching some island in the
South China Sea.
Everything that revolves
around land represents the main underlying cause
for industrial and economic concentration in Hong
Kong. When property prices and rents are that
high, they contribute to high living and business
costs. Wealth disparity gets out of control - the
key popular grudge of anyone who is not a
millionaire in Hong Kong. [9]
The average
Hongkonger - whose median household monthly income
is US$1,800, much less than our fictional Mr and
Mrs Chan - not only is bound to lose in the
property game but also gets to pay high prices for
basic daily necessities.
Hong Kong's very
simple tax structure - 15% for individuals, 16.5%
for corporations - may have been OK for its early
stages of economic development. Now that Hong Kong
is relatively wealthy in annual GDP per capita
terms (over US$45,000), but with a large
proportion of its population living below the
poverty line, it doesn't make sense anymore.
It's enlightening to note that this
average annual per capita GDP figure is double the
annual household income of an average Hongkonger.
The bottom line points to a fact that
should make the local ruling elite - not to
mention Beijing - quite uncomfortable. Without a
real democratic government, elected by Hong Kong
people, there's no way Hong Kong will ever reform
its land and tax system. The "freest" economy in
the world will continue to be a battle pitting a
wealthy oligarchy against a large majority
essentially struggling for survival.
NEXT: The rulers of the game
Eddie Leung is Managing Editor
of the Chinese edition of Asia Times Online.
Pepe Escobar is the author of
Globalistan: How the Globalized World is
Dissolving into Liquid War (Nimble Books, 2007)
and Red Zone Blues: a snapshot of Baghdad
during the surge. His most recent book is
Obama does Globalistan (Nimble Books,
2009). He may be reached at pepeasia@yahoo.com
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