Chamber in Review
Reinventing Hong Kong’s Economy
Reinventing Hong Kong’s Economy<br/>重塑香港經濟

Hong Kong has undergone a number of significant transformations that have shaped its economy, including rapid population growth since the 1950s and the rise and fall of manufacturing, said Michael Spencer, Chief Economist at Deutsche Bank.

Speaking at a Chamber webinar on 13 July on Hong Kong’s economic prospects, he noted that the city has always been an entrepot, but that exports had really surged in the past 20 years. “There was a dramatic increase in international trade that exploded in the 2000s, largely due to China’s entry to the WTO and the removal of tariffs.” 

Looking ahead to the next few decades, a key issue that will affect Hong Kong’s economic direction is its population growth – or otherwise. The population is expected to rise to 8 million over the next 20 years, then decline. But Spencer warned that previous predictions have been revised repeatedly, and the population could start to shrink earlier than expected. 

Like many cities in Asia, our infrastructure will come under pressure due to global warming.

“We need to recognize the impact of climate change on Hong Kong,” he said. “Under a medium projection, the land that has been reclaimed since 1950 will be reclaimed by the sea by 2040.”

Turning to the economy, Spencer noted that trade has become a less important driver of global growth, and China less reliant on shipments to Hong Kong – both of which are affecting our shipping sector. 

But opportunities are also arising as the Mainland continues to reform, particularly with the Greater Bay Area initiative. Spencer foresees a much greater opening up over the coming decades that will transform Hong Kong. 

“This may sound controversial,” he said, “but by 2047, for most people in Hong Kong there will be effectively no border between Hong Kong and Macao and the Mainland.”

The benefits of this include the much lower property costs in the Mainland, as well as the potential for Hong Kong businesses to expand as the whole of the Greater Bay Area becomes our hinterland. On the other hand, Hong Kong could lose some of its competitive advantages as the border dissolves. 

To stay ahead, Hong Kong will need to improve its knowledge economy. A key way to do this would be to increase our R&D spending, which lags far behind many other economies including Singapore, Taiwan, the Mainland, South Korea and the United States.

Also speaking at the event was Heiwai Tang, Professor of Economics at HKU Business School. He said that Hong Kong has benefited from the “hyperglobaliztion” that took place from the 1980s to the global financial crash of 2008. 

Hong Kong’s role has long been connecting Mainland China with the rest of the world. However, this role has shifted over the years from being a gateway to a closed country to helping foreign investors access the China market, and most recently facilitating China’s going out strategy. 

“Hong Kong has been changing passively due to the changing external environment,” he said.

Looking at Hong Kong’s four pillar industries, Tang noted that in recent years, only the financial services sector has grown in terms of share of GDP and share of employment.  

The other three – trading and logistics; retail, accommodation and food; and professional and producer services – have been shrinking or stagnating. The most worrying aspect of this trend is the “hollowing of the middle class,” Tang said. 

“When people lose their jobs in these three pillar industries, the kind of new jobs they can get are not in finance or related services, but in lower paid jobs.” 

While financial sector workers are doing well, people who used to make a decent living in the other sectors will fall behind. 

“I have advocated that the Hong Kong economy has relied too much on finance. While finance does provide good jobs, only around 10% of people benefit from those directly,” Tang said. “We need to create not only jobs, but good jobs for local people.”

Tang also suggested that Hong Kong’s policy of non-intervention in the economy has been misinterpreted in recent years, adding that both Hong Kong people and the Government today tend to resist major changes. But in the past, successful policies like building the MTR system and free schooling did require economic planning and intervention. 

Talent is another issue for Hong Kong, Tang added. While there have been some recent policies to attract more STEM academics, we also need to sort the demand side, he said. This means providing better opportunities in Hong Kong for experts in science and technology. One way to do this would be through more R&D spending to build research institutes, which could focus on healthtech or greentech. 

Manufacturing has now fallen to a tiny proportion of the economy, but we should not write off this sector, Tang said. Instead, Hong Kong could provide the prototype stage, which would also provide training and career opportunities for local people.

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