Globalization & Us

When i talked with my friends about the future of Hong Kong economy, they usually have the same worry that Shanghai and other Chinese cities would outshine Hong Kong and replace the city's economic role it has enjoyed as a window of the country. Some of them shared their personal experience of working in the mainland as engineers, financiers and accountants. They said, once they helped establish the systems and teach the mainlanders how to work like Hong Kong people did, the mainlanders can do the jobs on their own. Hong Kong would lose its edges as it cannot compete with the costs in the mainland, and my friends would be laid off. None of them are protesters against globalization. They just accepted that the opening of China was irreversible since it started in the late 1970's.

i agreed with them that China's market economy will go forward as the country has been a big beneficiary of free trade, which is vivid with the rapid economic growth and the rise of its middle class. But wait a minute. Will the opening China steal our jobs and break our rice bowls? Hong Kong's success has based on free trade from the very beginning. China has gotten the ticket for the wild ride. Will free trade turn its back on us?

We are born with free trade and we breathe it. In the early 19th century, Hong Kong became a successful harbor city exporting tea and silk. Hong Kong did the job so well that British has to colonize it and sell us opium to stop losing silver. As a British colony, we developed our legal system, infrastructure and education system, which contributed to greater success. In the 1960's, we developed into a manufacturing city with the influx of labor and capital inflow from the mainland. Manufacture of watches, electronics, garments and toys employed a large proportion of the population.

After the opening of China, factories moved north across the Lo Wu border in the 1980's. Manufacturing jobs followed the pave northward. You know what, we were not finished. Hong Kong had its golden years in the 1990's, with the upsurge of the financial sector. Industrialists raised funds here, poured capital in the mainland to build factories, and brought back the unprecedented profits to spend here. That contributed to the property boom until 1997.

Some people blamed the emigration of factories for the soft labor market that has been prevailing since the property downturn. In fact, the manufacturing jobs have gone for a long time. Many of the unemployed people are in the construction sector, victims of the burst of the property bubble. Some others are new immigrants from the mainland. They haven't adopted the skills demanded in their new home, which is a universal phenomenon happening in other cities populated with immigrants.

Even if the mainland did steal jobs from us, they stole the low-paid ones, which allows us to work out the high-paid ones. Netting out, we have more jobs.

Americans have the same worry that China is stealing jobs from them. In his best-selling book The World Is Flat: A Brief History of the Twenty-First Century, Pulitzer Prize-winning writer Thomas Friedman dismissed this worry. His argument may shed some light on the Hong Kong situation.

The major assumption for Americans losing jobs to China, India and other developing countries is a zero-sum game or "lump of labor theory" -- there are a fixed number of jobs in the world and the question is whether "we" or "they" get them.

Mr. Friedman argues that the lump of labor theory is wrong. If it were right, the U.S. jobless rate would not be at 5% as it is. Even though millions of jobs there have been outsourced to China and India, new jobs are created in the States. "The main reason the lump of labor theory is wrong is that it is based on the assumption that everything that is going to be invented has been invented, and that therefore economic competition is a zero-sum game, a fight over a fixed lump."

"I like going to coffee shops occasionally, but now that Starbucks is here, I need my coffee, and that new need has spawned a whole new industry. I always wanted to be able to search for things, but once Google was created, I must have my search engine. So a whole new industry has been built up around search, and Google is hiring math Ph.D.'s by the bushel -- before Yahoo! or Microsoft hires them. People are always assuming that everything that is going to be invented must have been invented already. But it hasn't."

And globalization will be a catalyst for that process. With globalization, countries that used to have their door shut now open to the world economy, and become part of it. The world economy has become larger and more complex, which generate more demand and some of them cannot even be imagined at present. What's more, Chinese and Indians will turn around to become stylish consumers.

Of course, Hong Kong needs to be as innovative as the States to come up with Starbucks and Googles. But please don't be discouraged. Similar evolutions, albeit in a smaller scale, have just happened here.

Remember the "Big Brother" phones in the 1980's. Holding a mobile phone was really something to show off, which was best depicted by John Woo's classic "A Better Tomorrow". Then, i asked why we needed a mobile phone when we have a pager and can borrow a phone in every local pharmacy stores in the street, free of charge. By the turn of the millennium, mobile phones had already become a necessity. Local pharmacy stores have been losing grounds to Watson's and Manning. Even if you can find one, it no longer does you such a favor.

Now Hong Kong is one of the most connected cities in the world. The telecom sector blossomed and generated a lot of jobs for technicians, salespeople, advertising talents and management.

Free trade plays many roles in these chemical reactions. More obviously, free trade enables the mobility of technologies and manufactured products. What's more. China has entered into the World Trade Organization and is obligated to open its telecom sector to foreign competitors. That pushes mainland telecom operators to improve their management and operation know-how. Recently, they invested in Hong Kong operators. Netcom (906) bought shares in PCCW (8) while China Mobile (941) acquired CR PeoplesPhone (331). i expect these alliances will create value, apart from funds.

Today people worry about the adoption of 3G. You might ask: "Why do I have to subscribe the 3G service, at a premium rate, when most of what I do with the phones are "talking and texting?" Quam cited a survey in Britain saying that 41% of 3G subscribers using their phones for "talking and texting" only. Of the respondents, 14% mistakenly thought that their 3G phones were 2G ones. The survey findings concerned Quam about the ARPU pressure facing Hutchison "3". i think the statistics actually shows that people just use 3G anyway, unnecessarily or even unconsciously.

When the economy advances, people demand better living standards, which "invents" more jobs. The question is how to make the economy advance. Globalization is the key. However, as the worldly trend takes place, things cannot go perfectly smoothly. Some people or countries will enjoy less benefit than the others. Some will even worse off. We have to make sure that we all sit in the same boat. Otherwise, these opponent forces may halt globalization. We will talk about it next time.


Disclosure of interest: i am holding shares in China Mobile.
Nov 30, 2005