It's Time to Get Real
By Sin-ming Shaw
Hong Kong's leaders must learn to put the territory's interests before their own
Last week marked an important milestone for hong Kong. For the first time, the territory's governing Cabinet has been appointed directly by the Chief Executive, Tung Chee-hwa, instead of being drawn solely from the career civil service. The Cabinet's 14 members include eminent academics, market-savvy operators and political leaders, one of whom heads the local proxy of the Chinese Communist Party. In his second term, Tung won't be able to blame his failings on not having his own team. In fact, his new lieutenants can help Tung improve on his somewhat sullied legacy.
Hong Kong's problems can be tackled if there is the political will. There are many vexing issues—new laws against subversion could be abused, a tamer press seems less inclined to play watchdog—but Hong Kong marks its fifth anniversary under Chinese rule facing really just two major woes: economic stagnation and a deep, communal sense of disenfranchisement.
Hong Kongers view their leaders either as stooges of Beijing or of property tycoons with vested interests in every important business in town. Government in Hong Kong is decidedly nonparticipatory. If locals are looking toward a greater say in their affairs in future, they can forget it: Chinese Vice Premier Qian Qichen last week made it clear that full democracy is not an option for the territory. Hong Kong's pragmatic and stoic citizens could tolerate all that if they were assured that the plutocrats were repairing the ailing economy. Unemployment has risen to European levels. Growth is anemic. Public deficits are on the up. The Financial Secretary once let slip that Hong Kong could become another Argentina. Scary but true.
Beijing's aging leaders talk tough, but China's younger generation wants the country to become as open, rich and cosmopolitan as Hong Kong.
Tung's new ministers are no fools. Admittedly, not all are the best and the brightest, but the economic team has a long and credible record in the financial and industrial communities. Its members appreciate that pro-growth policies must be implemented even if it means hurting the interests of powerful cartels run by billionaires who have, in some cases, helped make the careers of several of Tung's appointees. Part of the problem has been that those same vested interests, with government collusion, have kept the territory's cost structure too high relative to its productivity and its competition, especially China. Real-estate prices in Shanghai are a quarter of those in Hong Kong. The issue is not whether the territory deserves a "Hong Kong premium," but rather how high that premium should be.
Local developers sit on $60 billion worth of land, enough to meet private housing needs for the next 10 years. These developers are in fact Hong Kong's largest speculative hoarders. Boosting property values may provide temporary relief, but it raises the hurdle of investment returns, deterring business expansions and start-ups. Given that much land is held by a cartel of property companies and not subject to market forces, the government should not allow the developers to dictate when they apply for rezoning or when they build. Initially, lower real-estate prices will arouse ire among homeowners and tycoons, but the alternative—becoming an uncompetitive, overpriced backwater—is even more frightening. Falling prices will quickly stabilize. The last five years of stagnation plainly show that short-term pain is far better than long-term torture. Even those who have complained loudly about "negative equity" in their real-estate portfolios now know better.
Then there's the matter of wages. Fiscal deficits may become permanent as 70% of the government budget goes toward salaries. The head of the Hong Kong Monetary authority makes $1.1 million a year, twice the pay of the Chief Executive and six times that of Alan Greenspan. These multimillionaire public servants defend their pay by using private-sector wages as a benchmark—which is pure avarice. They ought to feel a calling for service rather than lucre. Encouragingly, several new Cabinet members from the private sector have taken a pay cut, some well over 50%. No public servant should make more than the Chief Executive.
The territory also seems overeager to please Beijing. Last week's brief airport detention of U.S. Sinologist Perry Link—rumored to be on the mainland's visa blacklist, presumably because of his consistent forthrightness on the subject of human rights—sends out the wrong signal that Hong Kong is less "two systems," more "one country." True patriots should realize that Beijing's aging leaders talk tough but that China's younger generations want the country to become as open, rich and cosmopolitan as Hong Kong. Hong Kong can serve the motherland better by providing a "best practice" showcase. Aping communist behavior can only shrink the "Hong Kong premium." What Tung and his new team must understand is that China needs Hong Kong to be the dynamic, bustling, free place it has always been, not just another Chinese city. This is Tung's last chance not to blow it.
Sin-ming Shaw, a longtime professional investor in Asia, will be a visiting fellow at Oxford University in the fall
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