Hong Kong's sagging economy won't return to pre-China boom?

Posted on Sun, Jul. 20, 2003
Hong Kong's sagging economy may never return to pre-China boom
By Ken Moritsugu - Knight Ridder Newspapers

HONG KONG - After six years of economic stagnation, Hong Kong residents are adjusting to a new reality: The boom times may never come back.

When real estate prices soared in the mid-1990s, it was easy "to make a quick buck," said Henry Tang, the minister for commerce, industry and technology. "Now, we have to do a real day's work."

If work can be found, that is. Unemployment has climbed above 8 percent in this southern Chinese territory of 6.8 million people. The SARS crisis, which took more than 300 lives and leveled the tourism industry, has come and gone, at least for now. But Hong Kong has to reinvent itself to be prosperous again.

When China began opening its economy in 1980, money rolled into Hong Kong, a unique gateway to the huge continent behind it, with the only modern port and infrastructure on China's coast. Manufacturing continued to prosper. Hong Kong joined the ranks of Asia's famous "tiger" economies, whose sustained rapid economic growth was held up as a model for developing countries everywhere.

Now Hong Kong is no longer unique, as China's ports and other facilities have progressed. Foreign companies can bypass Hong Kong and set up directly in mainland China, now that investment laws have been established there, as well as communications infrastructure. And mainland China's lower labor costs are draining jobs from Hong Kong's large population of unskilled workers.

Adding to the pain, the Hong Kong property market collapsed in 1997 along with property and stock markets throughout Asia. Real estate prices still are falling, and economists don't see them bottoming out for another 12 to 24 months. Hong Kong's economy has been weak since Britain handed its former colony over to China six years ago.

The loss of economic hope swelled the crowds at huge rallies earlier this month. Half a million people turned out July 1 to oppose a proposed new security law and express general frustration with their government. Confidence in the government took another knock Wednesday, as the chief of security and the financial secretary resigned.

Hong Kong still has some things going for it, especially as a financial center. Mainland China still lacks - at least for now - Hong Kong's legal protections and openness in business transactions, which stemmed from Hong Kong's British legal system and which foreign investors want.

Hong Kong also may retain a foothold in logistics, a fancy word for moving goods from point A to point B. Its companies can manage exports from the southern China industrial belt even if the goods never touch Hong Kong's shores, as Hong Kong has the necessary management skills and technology.

That kind of business, though, doesn't create many jobs in Hong Kong. Manufacturing accounts for just 5 percent of the economy, down from 20 percent in the early 1980s.

"Hong Kong is becoming a two-speed economy," said K.C. Kwok, the chief economist in Hong Kong for the London-based Standard Chartered Bank. For unskilled workers, it's definitely life in the slow lane, while highly skilled professionals still can speed along. "In the past, when exports did well, the domestic economy did well. Now, the linkage is less."

The government has launched a slew of retraining programs for unemployed workers, but shifting to a more sophisticated, service-based economy isn't easy, particularly for older workers. Nearly half the population has a ninth-grade education or less.

"It's a painful cycle," said Tang, who nonetheless remains upbeat about Hong Kong's prospects overall. "Not everyone benefits."

At the spanking new, computer-equipped government employment office in Cheung Sha Wan, an old, working class area of Hong Kong's Kowloon district, dozens of job seekers scanned the listings.

"For businessmen, China is a win-win situation," at least from the point of view of a 44-year-old unskilled worker who would give only his last name as Wong. "In my eyes, it's not. The employers are getting all the advantages. There's no benefit for workers." Employers at least can invest their money in mainland China, to take advantage of low wages.

Wong was among half a dozen middle-aged men who whiled away the time around a white table, chatting and reading tabloid newspapers. They joked that they come to the air-conditioned office only to escape the summer heat, since they never find work.

Man Kit Cheung, 53, lost his job a year ago when the garment factory he worked at for 20 years moved to mainland China. Competition for jobs is so stiff that "they want a high school education even for a cleaning job," said Cheung, who has only a few years of elementary education.

Time may be running out for business owners, too. Emerging mainland-based competitors have better contacts in China and cheaper front-office costs, compared with a business run out of Hong Kong.

"China is 1.2 billion people, and they're fast learners," said one Hong Kong entrepreneur, who markets Chinese-made custom furniture and lighting to American commercial customers.

The 42-year-old man, who wouldn't give his name for publication, figures he has another five to 10 years before mainland competitors catch up. "It's just a matter of time," he said.