Resilient Hong Kong

The Economist’s special section on Hong Kong may not describe the “greatest city the world has ever seen,” a future the Economist once projected for Hong Kong, but the magazine still views Hong Kong as a pretty impressive place.

The worst thing about Hong Kong is smog. In 1974, the year I left Hong Kong, the city had less than 200 hours a year when smog reduced visibility. That figure is now 3000 hours, a fifteen-fold increase. Local emissions ruin the air 192 days a year, mainland- sourced pollution another 132 days, leaving only 41 days when Hong Kong is low on pollution. Awful. Pollution—along with a shortage of places in international schools and the exorbitant price of housing—is one of the three major factors driving expatriates away (their numbers have dropped by a third since 2001).

Predictably, Hong Kong is also suffering from the mainland’s unwillingness to deliver the democracy China promised the city. China’s Basic Law for Hong Kong allowed for a freely-elected Legislative Council by 2007. While that development is nowhere in sight, once the British decided to leave Hong Kong undemocratic, that pretty much sealed the former colony’s fate under China’s rule.

Another Hong Kong downside is its disadvantaged competition with Shanghai, the mainland’s very own rising financial center. Hong Kong retains an edge over Shanghai because the Hong Kong dollar, as opposed to the yuan, is fully convertible. But that advantage will disappear once China decides to take it away. Time and the Chinese government are on Shanghai’s side.

Still, Hong Kong has a lot going for it:

 Hong Kong ranks ahead of Singapore on the Economist’s democracy index. It has a free press, operates a competitive economy governed by the rule of law, and its judicial system works. The Chinese have largely kept their promise to allow these freedoms to continue.

 While China’s rapid growth has reduced Hong Kong’s once-dominant entrepôt role in the China trade from 60% in the 1980s to 20% now, Hong Kong in absolute terms exports two times more from China than it did a decade ago, $300 billion a year. China’s prosperity benefits Hong Kong.

 Hong Kong is at the center of China’s Pearl River Delta (PRD), a region that includes Guangzhou, Macau, and the special economic zones of Shenzhen and Zhuhai, an area with 65 million people [see map]. Over the last 25 years, the PRD’s mainland region year after year has delivered the astounding growth rate of 17% a year[!]. Hong Kong firms employ 11 million in the PRD, and provide two-thirds of the area’s foreign direct investment. Collectively, the PRD’s mainland portion has attracted 22% of China’s foreign direct investment, and accounts for a third of China’s total foreign trade.

 The PRD is so successful, some PRD local governments are sending potential investors on to Vietnam and Bangladesh. Also, Hong Kong is part of a “pan-PRD initiative” aimed at bringing China’s nine southern provinces into a super PRD, to the benefit of 474 million people with a combined GDP the size of all ASEAN’s ten members.

As the Economist says, “Eat your heart out, Lee Kuan Yew.”