The fear of becoming irrelevant has crept into Hong Kong's psyche. In the
past month, two of Hong Kong's paramount leaders, Chief Secretary Raphael Hui
and Monetary Authority's Chief Executive Joseph Yam, separately warned that Hong
Kong could be rendered irrelevant by the rapid development of various mainland
cities in neighbouring Guangdong and beyond.
Such a scenario is a distinct possibility. In fact, it is fast becoming a
reality in certain economic sectors. The rapid development of container port
facilities in Shenzhen, for instance, is posing a long-term challenge to Hong
Kong as a premier trans-shipment centre for exports from the highly
industrialized Pearl River Delta region.
Yam at the Monetary Authority, of course, has other worries. He cautioned
that the maturity of the financial markets on the mainland could seriously
undermine Hong Kong's position as the major intermediary of foreign investment
in Chinese enterprises.
Neither Hui nor Yam have suggested any specific solutions to the problems
they raised. But their cautionary remarks have stirred a lively debate in
business and academic circles on the direction Hong Kong should take in shaping
its economic future.
So far, none of Hong Kong's institutions of learning and well-funded economic
think tanks have come up with a comprehensive study that identifies the specific
challenges Hong Kong is facing, and listed the areas where improvements need to
be made. Without such a well-researched and documented study, any attempt to
find a long-term solution would seem to be nothing more than a shot in the dark.
Naturally, many of the comments made by business people, economists and
politicians have been too general to be of any value.
Such a lack of vision is a reflection of the short-sightedness that prevails
throughout all social and economic sectors. Economists here have long argued
that the almost total exposure of the Hong Kong economy to outside influences
has rendered long-term planning meaningless. In the past, the built-in automatic
adjustment mechanism of Hong Kong's export-oriented economy meant that the
average duration of an economic cycle would be no longer than five years.
This may be changing. Hong Kong is now a service-oriented economy with the
services sector accounting for about 80 per cent of its gross domestic product.
Although the export sector has continued to be an important engine of growth,
the bulk of Hong Kong exports now consists of the re-export of goods in and out
of the mainland.
What's more, the currency peg has largely distorted the economic adjustment
mechanism, which works mainly through the exchange rate. With the Hong Kong
dollar exchange rate pegged to the US currency, any economic adjustment has to
be reflected in asset prices, and, as we all know, the asset market is much less
efficient than the foreign exchange market.
Hong Kong is just beginning to recover from an exceptionally long recession
that was triggered by the outbreak of the Asian financial crisis in 1997.
This seemingly new economic phenomenon has prompted discussions among some
economists about the need for a major rethink of Hong Kong's economic policy
with particular emphasis on the role Hong Kong plays in the development of the
mainland economy. But as Hui and Yam so forcefully noted, Hong Kong's role is
far from assured.
Hong Kong can never hope to compete on "hardware" with mainland cities where
supply of land and labour is plentiful.
To maintain a relevant role in China's economic development, Hong Kong needs
to ask itself what "software" it can offer to attract business from mainland
enterprises. Such "software" includes a range of professional expertise,
well-regulated capital markets, a fair and equitable legal system and a
relatively corruption-free government.
The answer to the relevance problem may lie in building on Hong Kong's
existing strength rather than making risky changes.
Email: jamesleung@chinadaily.com.cn
(China Daily 04/04/2006 page4)
