WRONG KONG
How the Hong Kong government made every bad domestic policy decision and set the stage for revolution
Overview
Often violent protests during the last year have rocked Hong Kong and captured the world’s attention. They have continued more sporadically even as conronavirus menaces the city. Superficial coverage has focused on the spark: the extradition bill that would have allowed authorities to rendition to China anyone upon Beijing’s request.
No question China’s constant efforts to undermine Hong Kong’s British derived legal system — which is supposed to be guaranteed under the one country, two systems formula that saw the city return to the Mainland — fuel much anger.
But, those who don’t live in Hong Kong are far less aware that the trouble has been triggered as much by an economic and social system that deliberately benefits very few; essentially a five family cartel.
Outsiders often forget, or don’t know, that Hong Kong was racked by a major protest in 2014, which saw parts of the city center and a major roadway occupied for three months. Occupy Hong Kong was part of the global Occupy Movement targeting wealth inequality. Police ended it with tear gas and batons.
Hong Kong has been a tinderbox for some time.
The House That Li Built
Much of the blame can be laid at the foot of local tycoon Li Ka-shing, officially Asia’s fifth richest man. Unofficially, possibly the richest. As the Panama Papers showed, Mr. Li has a lot of money stashed in tax free havens around the world.
Li had huge input into the British-Sino Agreement which laid the foundation for Hong Kong’s return to China and the Basic Law, which governs the city today.
(He was also Chinese leader Deng Xiaoping’s principle outside advisor on converting China’s economy from Maosim to state directed capitalism. Of late, China has indicated it feels it got a lot of bad advice that benefited Mr Li more than China. )
Li is Hong Kong’s Horatio Alger story - epitome of the self-made man.
Forced to flee war in Mainland China as a young boy with his father in 1942, he came to Hong Kong. A year later, his father died of tuberculosis. He slept on the floor he swept at a distant relative’s factory before rising to turn himself into the manager of the plant.
He left to build his own plastics business — start of an empire worth at least $30 billion with other fortunes made in property development, utilities, retail, and technology. He is a brilliant businessman, with a knack for finding companies that throw off lots of cash — often with monopoly positions. If the market isn’t already monopolized, he’ll engineer it. Hong Kong’s values reflect his dog-eat-dog brand of capitalism: “If Mr. Li can do it, why can’t you?”
While government policies must help and never hinder the rise of exceptional individuals like Li, they also must recognize that by definition most people are average. And 50 percent of people are below average.
There isn’t a Li Ka-shing inside every person.
What Has Li Ka-shing Capitalism Created?
The difference between a society’s rich and poor is often measured using the Gini coefficient – in which zero represents maximum equality and one represents maximum inequality.
Hong Kong’s Gini coefficient stands at 0.539. To put that in perspective, the highest Gini coefficient among the major developed economies is 0.411 in the United States. Think about the vast differences between America’s very rich and its very poor. Hong Kong is 25% more unequal.
At least 200,000 Hong Kongers live in cages. The middle class is very small and most of its net worth sits in an apartment that is 600 square feet rather than the average 484.
Hong Kong’s system makes the rich richer and the poor poorer.
The city has 7.5 million people — and more than 90 billionaires. Their fortunes – estimated at US$224 billion in 2013 – made up nearly 82 percent of the city’s gross domestic product. By last year, that had jumped to US$315 billion, or 86.6 percent of the city’s GDP.
The top five tycoons earned US$3.04 billion in dividends alone in 2016 and 2017. On which they paid no tax, as Hong Kong does not place a levy on dividends as part of efforts to maintain a “free economy.” In fact, there is no capital gains tax — at all.
No capital gains tax is one reason way Hong Kong has the largest concentration of wealthy people in Asia and is the world’s third most popular place for ultra-wealthy individuals to live. In a city where the average apartment is just 484 square feet, ultra-high-net-worth individuals own 3.3 homes on average.
Meanwhile, the remainder of Hong Kong’s population became poorer, with a record 1.37 million residents living below the poverty line last year, eking out a living on as little as HK$4,000 (US$510) a month. Among children, one in four live below the poverty line. The figure for the elderly is one in three.
In 2016 the median monthly household income of the top 10 percent of Hongkongers was 43.9 times the bottom 10 percent. The poorest would have to work three years and eight months on average to earn what the richest make in a month.
Even more staggering, in a city struggling with poverty and massive wealth inequality, the Hong Kong government sits on a HK$1.7 trillion surplus (US$219 billion) and before the recent “troubles” was running budget surpluses of more than HK$600 billion a year.
That’s why the government has come under fire for relatively measly spending on poverty relief.
Public spending stands at 14.4 percent of gross domestic product this year – higher than the 13.7 percent last year but lower than 15.7 percent in 2003, when an outbreak of severe acute respiratory syndrome forced officials to shell out cash to lift the struggling economy.
By comparison:
Overall, social welfare spending accounts for 16.5 percent in Hong Kong – lower than all seven members of the Organization for Economic Cooperation and Development.
No wonder in a city where so few are so affluent, everyone else is seething.
In this special series, we’ll take a look at all the areas Hong Kong has gotten public policy so wrong: