China Daily Hong Kong Edition: HK Faces Challenge of Redefining Itself

The last 15 years have, in terms of development, been good for Hong Kong.

There have been some ups and downs, most notably as a result of the Asian Financial Crisis, the SARS outbreak and the global financial crisis, but the city has managed to develop and grow, along with much of the rest of Asia. But the past decade and a half has also brought a lot of change and Hong Kong is now facing a number of hurdles and the challenge of redefining itself in the context of a more integrated Asia and an evolving China.

“The whole region has been growing, in the past 15 years, at a reasonably high speed,” said Professor Edward Chen, distinguished fellow at the Centre of Asia Studies of the University of Hong Kong.

“Asian governments are not only concerned with removing absolute poverty, they want also to narrow the gap between rich and poor,” said Chen.

Chen was speaking at the China Daily Asia Leadership Roundtable held as part of a series of events to mark the 15th anniversary of China Daily Hong Kong on October 8. He was one of nine top executives and intellectuals who gathered to discuss the path the city has taken since 1997 and the road ahead.

“Hong Kong, Past Fifteen Years and the Road Ahead” was one more in a series of similar roundtables first launched two years ago to “discuss topics and issues of importance to regional development in Hong Kong, the mainland and the whole region,” said Zhou Li, publisher and editor-in-chief of China Daily Hong Kong.

GDP growth in most Asian countries has averaged 5 to 6 percent, while the Chinese mainland has been growing at close to 10 percent and Hong Kong at an average of 3.6 percent.

“But, accompanying economic growth in the region we also observe instability and growing inequality with maybe two exceptions. China is always stable and also growing very fast. The other exception is Japan, very stable but growing very slowly,” Chan said.

Instability is hard to avoid. The Asian financial crisis in 1997 created much of it. When the IT bubble burst in 2000, it led to more instability, so did SARS in 2003. The global financial crisis in 2008 was also a cause for instability.

“Instability cannot be avoided,” said Chen. “Of greater concern is increasing inequality together with economic growth in the region. Hong Kong is not the only case.”
Across Asia, the Gini Coefficient that measures inequality, increased from about 0.4 to about 0.46 in the past 15 years. In the Chinese mainland, the measure has risen from about 0.32 to about 0.46 in the same period. In Hong Kong, the coefficient has risen from an already high 0.48 to 0.533.


To maintain economic momentum and growth Hong Kong has to do two things, said Chen.

The first is to increase economic cooperation and even integration with the mainland. (See sidebar)

The second is to find a new niche for Hong Kong industries. He believes the current interpretation of the “positive non-intervention” principle that is at the core of Hong Kong’s economic system since 1979.

“Positive non-intervention means no intervention when the results are positive. If the results are not positive, you should interfere,” said Chen. “They should go back to the original meaning.”

One area in which the lack of government intervention has cost Hong Kong dearly is in the development of science and technology. The city’s economy is not very diversified outside of finance, trading and service industries said Prof Yuk-Shan Wong, vice-president of the Hong Kong University of Science and Technology.

“The element of science and technology in the Hong Kong economy is very minimal when compared with economies in Southeast Asia like South Korea, Taiwan and Singapore,” said Wong. “We need to have new economic driving engines to provide enough jobs to our young generation and to maintain economic sustainability.”
In general, Hong Kong has good universities, with four ranked in the top 200 in the world. However, most of these universities are involved in basic research that does not translate into actual economic growth. Scientists and researchers publish high-end papers in top scientific journals but it is more rare to see that abstract research translate into marketable products or patents.

Neighboring economies like Taiwan and Singapore have been much more effective at converting science and technology progress into visible economic growth. Taiwan did it famously well in the production of electronics and integrated circuits through the 1980s. Singapore has taken a leap forward in medicine and pharmaceuticals.
Hong Kong, by contrast, missed out on a golden opportunity to develop a science and technology powerhouse, losing out to neighbors that put both emphasis and resources in the sector, said Wong. But, the Special Administrative Region may have another opportunity now to develop this sector by leveraging its relationship with — and the growth of — southern China and the Pearl River Delta.

“I believe there is a second chance for the development of science and technology,” said Wong. This could be done on the basis of six local universities and thousands of qualified professors and researchers, the links with the Pearl River Delta and its visibly larger resources for research and development and the growing number of research institutes that Hong Kong universities have set up in southern China.

“We should pick up this second chance and aim at developing (science and technology) as another economic driver for Hong Kong,” said Wong.
He believes the Hong Kong SAR government should take proactive leadership and develop a strong science policy, while business leaders and investors should be more long-sighted and positive on science and technology.

The contrast between Hong Kong’s development in science and technology and in other areas such as finance and even luxury consumer retail is stark. As Wong lamented a shortage of long-sighted policies in Hong Kong for his field, a luxury retailer expounded at length about the impressive growth of the Hong Kong market.
The Hong Kong luxury retail space has grown from a market that held two or three standalone luxury brand boutiques to a city that could sustain almost 10 luxury brands, said Dinesh Tandon, CEO for Asia Pacific at Bally GC Retail. This is much more than cities like London or Milan.

“Some brands have a waiting list of almost a year for certain luxury products,” said Tandon. “At the core of this development was the mainland customer... At least 60 percent of the business for luxury brands comes from mainland Chinese customers.”

However, there are also challenges even for a retail sector that has experienced unparalleled growth. The most visible challenge is the real estate cost. Rents have gone through the roof, making Hong Kong one of the most expensive real estate markets in the world.

Real estate challenges are, of course, not exclusive to luxury retailers. The property cost is a regular topic of discussion and one of the factors that contributes to the city’s high Gini Coefficient.


Another challenging, and often ignored, hurdle that the city faces is the environment. Air quality, in particular, has grown much worse over the past decade and a half, even as manufacturing has move to the mainland. The most visible case in point is roadside pollution, said Simon Ng, head of transport and sustainability research at Civic Exchange.

“We should be able to do better. We should be able to adopt a tighter standard in order to protect public health,” said Ng.

The Hong Kong air pollution index is published daily but is often misunderstood. Just about everybody in the city keeps track of the Hang Seng Index of stocks but very few follow the air quality index, in part because few actually known what it means.

“We need everyone to care about air quality before the government can put in place effective measures to control the air quality in Hong Kong,” said Ng.
Without a doubt, the city has changed and evolved considerably over the last 15 years.

Three significant events have had a significant impact on Hong Kong’s development in that period, said Dr Eddy Fong, chairman of the Securities and Futures Commission (SFC). The first was the Asian Financial Crisis in 1997, the second was the outbreak of SARS in 2003 and the most recent was the global financial crisis in 2008.

All three events posed significant changes, including the creation of the Closer Economic Partnership Agreement (CEPA) between Hong Kong and the mainland. Numbers speak for themselves. The Hang Seng Index has grown from about 10700 in 1997 to 21000 today, even after the impact of the global financial crisis. The number of companies listed on the Hong Kong Stock Exchange has risen from 658 to 1,533 with a market capitalization of HK$3.2 trillion in 1997 to HK$19.6 trillion this year, up more than 514 percent. Daily turnover on the stock exchange has also risen more than 240 percent from about HK$15 billion in 1997 to about HK$53 billion this year (and this is down from almost double that in the heydays of 2007).

“We have to work with the mainland). We have to work with the rest of the world. This is the survival element of Hong Kong,” said Fong. “We are international but really, what we have, is a good platform for international liquidity and funds to come in. If we don’t have a good platform nobody will have trust and confidence in Hong Kong.”

Hong Kong’s media industry has also evolved considerably. Newspapers, radio and television stations and websites all have had to adapt to a rapidly changing environment. Readers are less willing to pay for content but publishers face higher requirements for more sophisticated content, content that is socially responsible.

“The biggest challenge over the next decade or so, in such a customer liberated environment, is how to find an equilibrium,” said Dr William Lo, vice-Chairman of the South China Media Group.


The film industry is also facing change, said Ko Chi Sum, CEO & Producer at Spring-Time Stage, and could benefit from the evolution of Hong Kong and growing integration with the much larger market in southern China. The similarity of tastes between Hong Kong movie-goers and their peers in Guangdong, for example, open up an opportunity for local filmmakers, said Ko, a well-known director and industry executive.
One of the great things about Hong Kong, said Dr Raymond K F Ch’ien, chairman of the MTR Corporation that operates the city’s mass transit system, is the opportunities it provides for expansion.

“Given a chance and the right environment where you can be financially sustainable, you can sustain really rapid growth,” said Ch’ien.

Before 2007, the year MTR merged with KCRC, the MTR company managed a network of less than 95 km and moved less than 3 million passengers every day. Today, the company manages a network of almost 1,000 km and moves some 9 million passengers in operations in Hong Kong, Beijing, Shenzhen, London and Stockholm and will soon open a service in Hangzhou.

Ch’ien believes Hong Kong should be a leader for the mainland, not only in areas like infrastructure but also in education, and health care delivery.

“We can really help the mainland to become one of the global leaders,” said Ch’ien. “That’s what gives Hong Kong sustainability and scalability.”

Greater integration with the mainland and increased participation in the global economy are the hallmarks of Hong Kong’s development not only over the last decade and a half but going forward. The challenge over the next decades, said Joe Ngai, managing partner at McKinsey & Company Hong Kong, will revolve around Hong Kong’s role as a hub and its ability to continue leveraging this strength while addressing the challenges facing the city in areas such as education, the environment and inequality.

“We have to be very proud of our ability as a hub,” said Ngai. “At the end of the day, we should be proud of having a much bigger impact than what we are ourselves.”

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