Hong Kong needs new growth sectors to drive economic development forward, provide jobs and boost social mobility. This should be one of the best ways to rejuvenate the local manufacturing industry. The business community expects the current SAR government to play an active role in delivering industrial policies and pushing economic development forward by revitalizing the manufacturing industry to benefit local residents.

Sustained economic development and growth are the foundation for maintaining long-term social stability and harmony as well as the secure and happy life of the people. With political wrangling on the rise in recent years, the government has been under increased pressure to address such issues as housing, poverty, its aging society and deteriorating environment. A crucial way to ease popular discontent and raise the happiness of society is to strengthen the economy. Here is a review of Hong Kong's economic development and social conditions over the past 60 years as a reference for the government to formulate long-term economic strategies and build up the city's economic power.

Simply put, Hong Kong was able to gradually turn from a trading port more than a century ago into a financial center today thanks mainly to the rise of the processing and manufacturing industry in the late 1950s. In the 30 years or so afterwards, a large number of small- and medium-sized enterprises were established to open factories in the city, with manufacturing peaking in the late 1980s. At that time more than 900,000 people were working in manufacturing, which accounted for about 24 percent of GDP, while export of industrial products earned huge amounts of foreign exchange. Hong Kong's economy was buoyant and people were content back then.

However, because the expanding economy outstripped the supply of labor and had pushed up the cost of production, local manufacture began shifting to the mainland and Southeast Asian countries in the early 1980s. By the mid-1990s the majority of manufacturing industry production had moved to the Pearl River Delta region, leaving only the sales and design departments in Hong Kong. The format is described as "sales in the front and manufacturing in the back". By then Hong Kong had completed its evolution from a manufacturing and export-driven economy to a service-based one. Now the city's economy relies overwhelmingly on banking, insurance, logistics and transportation, business services and real estate development. Meanwhile, the growing number of visitors from the mainland is boosting Hong Kong's retail and hospitality sectors. Currently it is probably the only service-oriented economy in the world, which has traditional industry - about 200,000 employees - accounting for less than 5 percent of GDP.

It should be noted, however, Hong Kong is an independent economy like Singapore and Switzerland, not a city economy like New York, London or Shanghai. The current economic structure of Hong Kong is undesirable. Why? Because the customers of its service industry are based overseas, which means Hong Kong does not control market demand and has to always react to external economic fluctuations. The overly passive nature of its economy has been fully exposed repeatedly by financial turmoil in the past few decades. A sorry example can be found in Detroit, once celebrated as the capital of the United States' auto manufacturing industry but now on the verge of bankruptcy thanks to its monotonous industrial structure and the fact that the US auto industry is in a slump.

As for Hong Kong, given the situation today, it is safe to expect a lot more challenges in the near future. For starters, the rising financial services industry in neighboring areas will affect Hong Kong's for sure. Then there is the worrying trend of shrinking manufacturing industry in the Pearl River Delta region, which spells trouble for Hong Kong's logistics and transport industry: the more manufacturing industry moves inland, the further away from Hong Kong it gets. As for tourism, its development is restricted by a small size and relatively large population. These factors hinder the long-term development of the economy and the government must have policies to deal with them.

A robust local manufacturing industry will not only earn large amounts of foreign exchange and create jobs for Hong Kong, but also will serve as a platform for scientific research and being a training ground and career option for engineering students. Currently the absence of manufacturing industry in Hong Kong means the fruits of scientific research can only be sold to enterprises outside, while local taxpayers get almost nothing in return.

In the past few decades indicate Hong Kong's economic growth has been markedly behind Singapore's and current conditions offer little reason to be optimistic about the possibility of a significant rise in the near future. Therefore Hong Kong must build a new economic growth engine to drive its economic development, provide jobs and enhance social mobility. One of the best ways to do so is to bring the manufacturing industry back. The first meeting of the Economic Development Commission this year touched upon this subject and the conclusion was: "It is necessary to renew our recognition of the contribution the manufacturing industry made to Hong Kong's progress."

The author is a member of the Economic Development Commission.

(HK Edition 04/19/2013 page1)