HONG KONG - In
an analogy, Hong Kong can be likened to a small
cat and mainland China to a giant tiger, when
compared by their geographical size and economic
strength. Interestingly, the analogy may remind
one of a popular Chinese fable. It goes like this:
In the Middle Kingdom, people
believe that, in the beginning, the tiger was
weak and clumsy though big in physique, while
the cat was smart, agile and skillful in
capturing prey, albeit small. Despite the
differences, the two
were good friends.
So one day, the tiger
asked the cat to teach him kung fu. The cat
agreed and was patient in teaching the tiger,
which gradually learned how to stalk, run, jump,
roll, grasp, tear, and strike as well as the
cat. The tiger thought he had already learned
all kung fu techniques from the cat, and an idea
came to his mind: "I'm so much bigger than the
cat. I will become peerless if I can get rid of
this small cat."
So one day when the cat
was taking a nap, the tiger stood up and
approached the cat viciously. Just as that
moment, the cat opened up its eyes, immediately
realized what the tiger was trying to do, and
swiftly climbed up to the top of a tall tree. "I
have kept the last technique of the tree
climbing from you just in case," the cat loudly
told the tiger, which watched under the tree
helplessly.
The first part of this fable may be
said to vividly describe the relationship
between Hong Kong and mainland China. It is a
fact that in the past three decades mainland
China has learned all the techniques from Hong
Kong for building a capitalist-style
free-wheeling market economy. Given its size and
with its success, the mainland has inevitably
become stronger and more powerful - to the point
where it is now the world's second-largest
economy.
The second part of the story
may not be accurate is but relevant to the
relationship between Hong Kong and the mainland.
China's taking back Hong Kong in 1997 was
non-violent and legitimate, as it was
internationally recognized. However, many in
Hong Kong still think that the city, like the
cat in the fable, has reserved some things to
enable itself to keep away from the tiger: in
particular, the rule of law and freedom. This
will also be at Beijing's mercy when its
commitment to "one country, two systems" expires
in 2047, but that will be another story.
Here we'd like to examine how the
mainland, the tiger, has learned from the cat,
Hong Kong, how to develop a market economy.
When Deng Xiaoping initiated his
economic reform and opening up in late 1970s, he
apparently thought of Hong Kong as a model for
economic (not political) development, as he said
later in 1988: "Now there is one Hong Kong; we
must create several more 'Hong Kongs' on the
mainland. That is, we must further open up." [1]
To lure foreign investment and learn
about the operation of capitalism, Deng approved
the establishment of four Special Economic Zones
(SEZs) in 1980: Shenzhen, bordering Hong Kong;
Zhuhai, bordering Macau; Shantou, in east
Guangdong (with an eye on attracting investment
from overseas Chinese in Southeast Asia); and
Xiamen, in Fujian (to attract investment from
Taiwan). Shenzhen SEZ is by far the most
successful, largely because of its proximity to
Hong Kong.
At the initial stage of
economic reform and opening up, for the purpose
of capital accumulation, China had also learned
from Hong Kong to introduce foreign-invested,
re-export-oriented, labor-intensive processing
industries.
At that time, Hong Kong's
processing industries began to suffer from
increasing land and labor costs, so investors
there were happy to move their factories across
the border. At the peak time in 1980s and 1990s,
it was estimated that there were about 100,000
Hong Kong-invested re-export enterprises, mostly
small or medium-sized, in Shenzhen and the rest
of the Pearl River Delta area.
Hong Kong
investment brought into the mainland not only
capital but also, more importantly, knowledge of
modern management and trade, which helped China
to build up a legal system governing foreign
investment and trade to enable the country to
further open up to the world.
Furthermore, Hong Kong also served as a
model for China to privatize its property
sector. In the early 1990s, Beijing decided to
privatize the country's property sector (until
then all housing was virtually state owned), but
it faced a dilemma: China insisted at that time
and still insists today that it is a socialist
country.
The core of socialism is public
ownership, so under the Chinese constitution all
land belongs to the state. To privatize housing
property would mean to abandon socialism, but
without privatizing the real estate sector,
China's market-oriented economic reform and
opening up would stand stagnant as a private
property sector is an important part of a market
economy.
In this regard, colonial Hong
Kong's system provided a perfect solution for
socialist China. Under British colonial rule,
most of the land in Hong Kong belonged to the
"Crown". One could only rent, or buy the right
to use a land lot, from the "Crown" for a
certain period of time, and a land premium had
to be paid if one wanted to continue to use it
after the original contract expired. Thus
selling and reselling the land-use rights became
an important source of financial income for Hong
Kong government. The system continues today.
It can be said literally that Beijing
has simply copied Hong Kong's land system in its
privatization of the property sector. Today in
China, if you say you have bought a piece of
land, it actually means you have bought the
right to use that piece of land for a certain
period of time, for legally all land still
belongs to the state. Likewise, when one buys a
house or flat in a building, one does not own
the land (proportionally in the case of owning a
flat) on which the house or building is erected.
But there is a fatal defect in Hong
Kong's land system. During colonial times, the
British simply saw Hong Kong as a "borrowed
place" for some "borrowed time", so they did not
care about long-term development. With limited
sources of income, the design of the land system
enabled the British Hong Kong government to have
sufficient income to sustain its operation.
I need my (land) fix In
practice, it proves much easier for a city
government to produce income by selling public
land than collecting taxes or making efforts to
create other sources of income.
But this
also proves addictive - like "opium". Inherited
from the British, today's Hong Kong government
still has heavily relies on land premiums as its
main source of income. The more it increases
spending on social welfare under growing
populist pressures, the more it has to rely on
property development unless it can create other
sources of income.
Nowadays, we see
governments of many cities in mainland China
also become addicted to this Hong Kong-style
disposal of land. Many cities rely on land
premium incomes to build subways and other
infrastructure projects. It is too tempting not
to do so. The more a city government spends, the
more it has to rely on land premium income.
Given China's autocratic system, it is much
easier for a city government to take back a land
lot from people who live or farm on it with
little compensation. In this regard it can be
said "the pupil excels the teacher".
But
this has resulted, as widely reported, in abuse
of power, injustice, corruption and skyrocketing
housing prices. From this perspective, it is
also not hard to understand why city governments
are resistant to Beijing's repeated tough orders
to bring down housing prices, for a downturn in
the property market would mean less land premium
income for a city government.
Now seems
to be the time for the mainland to reform its
land system to get rid of that "opium" - or
defect - imported from Hong Kong. China is such
a huge country with such a huge population and
so many cities, it must not run a property
market like Hong Kong.
Hong Kong may
have provided many good examples of economic
development for China. It is time for Beijing to
draw a lesson from Hong Kong's bitter experience
of making property development the "pillar
industry" of the city.
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