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Hong Kong – Time For Change?

By Pratishtha Mamgain, II year Economics

Since September 2014, Hong Kong has witnessed unprecedented widespread protests that reiterate the importance of equality and democracy. These demonstrations not only symbolise people’s resentment over Beijing’s tightening grip on the city’s politics. They also throw light on the growing sense of anger at the economic changes that have transformed Hong Kong in the 17 years since it returned to Chinese control, especially the idea that wealth inequality and economic opportunity have taken a dramatic turn for the worse.

Economic inequality in Hong Kong is the highest in the developed world, and among the highest in East Asia. One in five lives below the poverty line. In recent years, the Gini coefficient has risen to a record high- reaching 0.537 in 2011.This coefficient is a measure of income disparity based on original household income where 0 represents total equality in a society and 1 represents complete inequality. A figure of 0.4 is generally regarded as the international warning level for dangerous levels of inequality. This development comes when Hong Kong has consistently done well in fostering business- in the annual “Ease of Doing Business” report compiled by the World Bank, Hong Kong ranks third for 2015. Clearly, this economic dynamism has come at a price.

There’s no capital gains tax, there’s no dividend tax, there’s no tax on interest- so the wealthy are free to expand their wealth through investment devoid of any taxation. The tax rate for the highest-earning group is 15% which is significantly lower than the OECD average of 41.5%. And naturally, lower tax revenues also mean lower government spending.

A serious problem that people face is the lack of affordable housing. Real estate has long been considered a relatively ‘safe’ investment tool because overpopulation has led to demand exceeding supply of housing, pushing house prices up. The increased demand for properties has also raised the rents. This further distorts equality in the society as these rents become a source of unearned income for the owners of properties. As migration of unskilled workers seeking better job prospects from China is common, competition for unskilled work is also high. This drives the wages for unskilled work down, further increasing the disparity between the incomes of individuals in society.

Even as it disenfranchises the lower classes, the property boom has enriched Hong Kong’s upper classes – helping to push Hong Kong to the top of The Economist’s “crony-capitalism index” in 2014. The index looks at the prevalence of rent seeking- ‘grabbing a bigger slice of the pie than making the pie bigger’. Rent seekers use means like lobbying and forming cartels in order to secure their business interests.

These numerous signs should ideally set alarm bells ringing. But the administration has chosen to react by turning a blind eye. There is widespread resentment against C.Y. Leung, Hong Kong’s current chief executive and a member of the business elite who have benefitted from closer ties with the mainland. In October 2014, Leung in an interview with the media remarked that complete universal suffrage (the model the protestors are seeking) would risk turning Hong Kong into a welfare state as poor people gain more influence in politics. “If it’s entirely a numbers game and numeric representation, then obviously you’d be talking to the half of the people in Hong Kong who earn less than US$1,800 a month [HK$13,964.2],” Leung said in comments published by the Wall Street Journal, Financial Times and the International New York Times. 

As shocking as his remarks are, they emphasize how far apart the government and protestors are, in terms of philosophy as well as on the issue of concrete demands. He clearly feels that democracy is dangerously close to mob rule, and thus a major threat to Hong Kong’s economic future. But for protestors, it will provide the much-needed check on Hong Kong’s leaders.To Leung, democracy is a problem; to the protestors, it is the solution.


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