Hong Kong biggest property tycoons are accorded social prominence and political influence not seen in any other developed society.
 
Senior government officials treat them with deference. Their public utterances, however pedestrian, are reported by the media as if they were voices from the Burning Bush on Mt. Sinai.    
 
The public no doubt assumes that property industry is at the centre of the local economy dwarfing any other economic sector.  Guess again.  Its weight in the economy, beyond funding importantly the fiscal budget, is grossly exaggerated.
 
Take job creation, which must rank at the top of any government’s economic priorities, the property sector comes up short.
 
Recent data register 62,000 workers employed by the construction industry, 89,000 in the real estate sector totaling 151,500 people.
 
Hong Kong’s manufacturing sector which everyone has long written off as irrelevant, dying or “dead” has 168,000 on its payroll, besting the combined work force of construction and real estate.
 
In the import/export business there are 510,000 people employed, over 3 times that in the entire property business.
 
Then our wholesale/retail/restaurants/hotels sectors also employ nearly 500,000 people.
 
Overall, these 3 non-property economic areas employ nearly 8 times more workers than the property sector. 
 
If there were to be one person one vote to shape the agenda of the economy, the property owners and workers would have to take a backseat close to the exit door while the “others” would
sit at the front.
 
Perhaps the property sector generates more value to the economy despite their smaller work force?   Wrong again.     
 
Real estate’s share in GDP was 5.3% (2004 figures).  Construction was 3.7%.  The total was 9% -- not even remotely close to the less glamorous “others” from the wrong side of Mt. Sinai.
 
The import/export sector contributed nearly 23% to Hong Kong’s GDP.  Its sister sector, Transport and Storage, was another 8%. They add up to 31% -- more than 3 times that of the property sector.
 
Not only does the import/export business contribute far more to the economy, the profits of that sector also vastly dwarf those of the property cartel, and consistently so despite volatile swings in global business cycles.   
 
It is these profits, mostly from Kong owners’ factories turning out unglamorous products sold to the world shipped through Hong Kong as re-exports that are a major source of demand for Hong Kong properties. 
 
Re-export margins -- profits from goods made in China and transshipped through Hong Kong  -- as a percentage of GDP went from 10.4% in 1996 to 16.5% in 2003 while Profits of the Real Estate as a percentage of GDP peaked at 5.9% in 1997 which was a bubble year. 
 
Developers are also sellers.  The rest of us are buyers.  Anyone who has ever bought a share ought to know the interests of buyers and sellers do not usually coincide.
 
The real drivers of our economy remain the “dead” manufacturing sector now mostly relocated to the southern provinces of China responsible for an estimated 10 million workers in China.
 
Beijing and the Hong Kong government should be kowtowing to these invisible Hong Kong manufacturers for their contribution to the motherland since “patriotism” is so IN.  Instead, both they and the local media continue to treat property tycoons as if they were the rock upon which Hong Kong was built. 
 
In any other developed country developers don’t even rank as the most respectable since the business has little, if any, intellectual content.  Underpaid architects provide that.  
 
Developer Donald Trump in New York has wisely turned himself into a media entertainment because he knows his business is not intellectually serious in a country that does not automatically rank money over the mind. 
 
Why is Hong Kong different?  
 
Two reasons.  The property industry is concentrated in just a few individuals unlike the other businesses.  The impressive concentration of wealth dazzles the way rock or Hollywood movie stars do. 
 
Second, owning properties has been a successful one-way bet for many residents, including those who live in subsidized housing.   A prime exhibit is Joseph Yam, the head of the Monetary Authority who had famously “invested” in several luxury flats. 
 
Everyone seems hooked on this habit of property speculation and the tycoons are the biggest suppliers and addicts always kowtow to suppliers.
 
 

Hong Kong's biggest property tycoons are accorded clout not seen in any other developed society. Senior officials treat them with deference and their public utterances, however pedestrian, are reported by the media as if they were voices from the Burning Bush on Mount Sinai.

The public, no doubt, assumes that the property industry is at the centre of the local economy. Guess again. Take job creation, which must be at the top of a society's priorities. Here, the sector comes up short.

About 62,000 workers are employed in the construction industry and 89,000 in the estate-agent sector - a total of 151,000.

Yet the manufacturing sector, which everyone has long written off as irrelevant, dying or "dead", has 168,000 people on its payroll; 510,000 are employed in the import-export sector; and the wholesale, retail, restaurant and hotel sector has a workforce of nearly 500,000 people.

Overall, these three sectors employ eight times more workers than the property industry.

If society's economic agenda were decided on a purely democratic basis, the property tycoons would have to take a back seat, proportionate to their smaller contribution to jobs.

So, does property generate more for the economy? No. Last year, property accounted for 5.3 per cent of gross domestic product; construction, 3.7 per cent - a total of 9 per cent. By contrast, the import-export sector contributed nearly 23 per cent to Hong Kong's GDP. Its sister sector, transport and storage, accounted for another 8 per cent - a total of 31 per cent, or more than three times that of property.

Not only does this sector contribute far more to GDP, its profits also consistently dwarf those of the property business. Re-export margins - profits from goods made in China and transshipped through Hong Kong - as a percentage of GDP rose from 10.4 per cent in 1996 to 16.5 per cent in 2003, while property profits as a percentage of GDP peaked at 5.9 per cent in 1997, which was a bubble year. The re-export profits accrued to factory owners and their staff living in Hong Kong are, in fact, a major source of demand for local properties.

The real driver of our economy is the "dead" manufacturing sector, now mostly relocated to the southern provinces of China, which is responsible for an estimated 10 million workers. Beijing should be kowtowing to these less visible Hong Kong manufacturers for creating jobs and adding to the country's foreign reserves. And so should the Hong Kong government. Instead, both treat property tycoons as if they were the rock on which Hong Kong was built. In any other civilised country, developers seldom rank as the most respectable people, as the business has little, if any, intellectual content. Underpaid architects provide that.

In the US, Donald Trump has endeared himself to the public by reinventing himself as an entertainer because he knows that a property developer is not taken seriously in a cosmopolitan city such as New York.

Hong Kong, alas, is different. The property industry is in the hands of a few individuals whose wealth is dazzling. Then there is the fact that owning properties has mostly been a good bet for many residents, including those in subsidised housing. Buying properties has become like a drug culture. Even Joseph Yam Chi-kwong, head of the Monetary Authority, "invested" in several luxury flats.

Everyone seems to be addicted to property speculation, and the tycoons are the biggest suppliers. Addicts always kowtow to suppliers, and the government has been hooked for many years.

Sin-ming Shaw is a visiting scholar at Columbia University. This is the second of a five-part weekly series on Hong Kong's economy and leadership

The Hong Kong public is upset at the alleged collusion between the government and big business. The jury is still out on the issue, but there is definitely something going on. That "something" is much less secretive than conventional wisdom would suggest. It involves institutionalised relationships between government and the biggest property companies. This relationship is not clandestine, but open, and it pre-dates the current administration.

At the centre of the bond is the addiction to land revenue, with the property tycoons as the principal suppliers. Almost the entire population is also addicted to the idea that trading in property is a life-long profitable habit.

Last year, land income was 2.6 per cent of total operating revenue. It was low because the government stopped selling land, to support property prices. Historically, the share has been much higher, reaching 25 per cent in the 1997-98 financial year. As the economy recovers, land's prominence in the budget will rise again.

Many believe that land-related income is understated in the budget because it excludes profits tax on property companies and stamp duty on property shares trading.

A double-digit share in the budget has political significance because less than half a dozen developers typically account for most of that revenue. Among them, three dominate: Cheung Kong, Sun Hung Kai Properties and the Henderson Group.

The developers rely on the government's co-operation to ration its sales, thus ensuring prices rise over time, notwithstanding short-term volatility. Protesters against "collusion" sometimes forget that these tycoons are major underwriters of public finance. Put another way, they are an arm of the Inland Revenue which collects from the tycoons who, in turn, collect, via a finished product at monopolistic profit margins, from the end-users. Naturally, the government is tolerant of this exclusive club because it is a dependable tax collector. The administration is understandably against enacting anti-competition laws, as they would impinge on tycoons' interests that have extended beyond property. Higher revenue also allows senior officials to pay themselves salaries several times higher than those of their counterparts elsewhere. Joseph Yam Chi-kwong, head of the Monetary Authority, who controls neither money supply nor interest rates, is the world's highest paid "central banker".

The top developers sit on huge inventories of land that could supply at least six years of total private housing needs. Hong Kong property tycoons are the world's biggest land speculators. Sun Hung Kai, Cheung Kong and Henderson are the world's three largest property companies. Their financial success depends critically on a co-operative government which values this co-dependent bond that has served both parties well.

Former governor Chris Patten learned the hard way by fiddling with that relationship. In 1994, when he wanted to curb runaway property prices, he broke with tradition by not consulting the tycoons before launching his measures.

At a historic auction in May of that year, the 12 largest property companies formed a united front to hugely underbid for two multibillion-dollar residential property sites. No other developer tried to outbid it. In fact, no one else could afford to.

The government was shocked. Unlike the climax to the classic western High Noon, this time the sheriff was gunned down by the bad guys. Never again did Mr Patten try to upset the financial relationship. This has remained intact, until Chief Executive Tung Chee-hwa began to show apparent favouritism to one family - riling the other tycoons. Will there be a price for Mr Tung to pay?

Sin-ming Shaw is a visiting scholar at Columbia University. This is the first of a five-part weekly series on Hong Kong's economy and leadership

The Hong Kong public is upset at “collusion” between the government and big business.  
 
Collusion means secret agreements between officials and private individuals for deceitful or illegal activities.  The jury is still out on this issue. However, there is definitely something going on.
 
That “something” is much less secretive than conventional wisdom would suggest.   It involves institutionalized relationships between government and the biggest property companies, not with all tycoons or all developers.   This relationship is not clandestine, but open and it pre-dates the current administration.  
 
At the center of the bond is the budget’s addiction for land revenue with the property tycoons as its principal suppliers.
 
Almost the entire population is, too, addicted to the idea that trading in properties is a life-long profitable habit.
 
Last year the share of land income in total operating revenue of the fiscal budget was 2.6%.  It was low because the government stopped selling land to support property prices.  The share was historically much higher reaching 25% in fiscal year 1997/98.   As the economy recovers, land’s prominence in the budget will rise again.   
 
Many believe land-related incomes in the budget are understated because they exclude profits tax on property companies and stamp duty on trading of property shares on the stock exchange. 
 
A double-digit share in the budget has political significance because less than half a dozen developers typically account for most of that revenue.   Among them 3 companies dominate: Cheung Kong, Sun Hung Kai Properties and the Henderson Group.  Many believe Cheung Kong’s chairman is first among equals.
 
The developers rely on the government’s cooperation to ration its sales to ensure prices would rise over time notwithstanding short-term volatility.
 
Protestors against “collusion” sometimes forget that these tycoons are major underwriters of public finance.   Put it differently, they are an arm of the Inland Revenue which first collects from the tycoons who in turn collect, via a finished product, at monopolistic profit margins from the individual end-users.  The margins average 50%, sometimes over 100%, besting knowledge-based monopolies such as Microsoft.
 
Naturally the government is tolerant of this exclusive club   since it is a dependable tax collector.  This government is understandably against enacting anti-competition laws for they would impinge on the top tycoons’ interests that have extended beyond property.
 
Higher government revenue also allows the senior officials to pay themselves fabulous salaries several times more than their counterparts anywhere on this planet.   
 
Joseph Yam, the Head of the Monetary Authority, who is not even a central banker for he controls never money supply nor interest rates, is the highest paid “central banker” in the world. 
 
Like the now disgraced former chairman of the New York Stock Exchange, Richard Grasso, his compensation was determined by a committee with many members whose business the Monetary Authority regulates.
 
The top developers sit on huge inventories of land accumulated over the years that could supply at least 6 to 7 years of total private housing needs.  Hong Kong property tycoons are the world’s largest land speculators.  Sun Hung Kai, Cheung Kong and Henderson are the world’s three largest property companies.   Their financial success depends critically on a cooperative government who values this co-dependent bond that has served both parties well over many years. 
 
Former governor, Chris Patten, learned the hard way by fiddling with that relationship.
 
In 1994 when Chris Patten wanted to curb runaway property prices, he broke tradition by purposely not running past the tycoons for advice and consent before he launched his measures.  
 
At a historic auction in May of 1994 twelve largest property companies formed a united front to grossly underbid two multi-billion dollar residential properties.  No developer outside the united front raised a hand to outbid the cartel.  In fact, no one else could afford to bid for multi-billion land except the cartel.
 
The government was shocked by the showdown.  Unlike the climax at the classic cowboy movie, High Noon, the Sheriff this time was gunned down by the bad guys.
 
Never again did the Patten administration dare to upset that financial relationship which remains intact to this day until the current Chief Executive began to show apparent favoritism on one single family at the cost of riling all the other tycoons. 
 
 
Sin-ming Shaw is a visiting scholar at Columbia University, New York.