My boss Vincent started to worry about the viewership of this column if i keep on elaborating on my own shopping experience and psychic matters. i have decided to start something more serious, although i would return to trivia later.
The Hong Kong economy is a big thing to me, as i live here. If i lived in Macau, i would be more interested in studying the economy there, although the Macau economy is indeed related to HK's as well as in mainland China's. Footballer Gaucho Ronaldinho might have enjoyed Chinese cuisine and five-star hotel accommodation in HK, but the HK economy would be the last thing concerning him. In last week's issue, the Economist magazine tries to convince a Martian, out of imagination, to invest in Germany, rather than the U.S. If that Martian came to HK, he would be amazed by our martial arts movies in which Kung Fu fighters, apparently flying around, remind him about his home planet, on which the weaker gravity force allows creatures to take similar actions.
Let's look into the HK economy from this outsider's viewpoint.
HK is small
HK is an integrated part of the world's economy. Its situation is like that of the beverage bar of a tea restaurant, supplying Ovaltine drinks, coffee and tea. But the business of this bar depends on that of the whole restaurant.
Look at the figures and you will see how dependent HK is. Hong Kong's 2004 total imports amounted to $2.1 trillion, most of which are re-exports. Re-exports amounted to $1.9 trillion. Total exports were $2 trillion. The stock market is valued at $6.6 trillion as at the end of 2004. The year's market turnover amounted to $3.9 trillion. In both trades of goods and securities, HK functions as a middleman and collects tiny proportions of the traded values as commissions. HK's GDP was relatively small at about $1.3 trillion.
Local retailing, in contrast, was of a size of $0.2 trillion. The retail figure looks trivial as a benchmark, although it is probably a lagging, and visualized, indicator.
The number of visitors to HK was about 21M in 2004, triple as many people living here, at 6.9M. In comparison, Singapore has 8.3M visitors and a population of 4.2M.
It seems that HK is serving a much bigger economic chain than itself. And as a middleman of these activities, the role it plays is relatively passive. To study the HK economy, one has to use a wider map than that of the territory only.
The Martian goes through the HK history, briefly.
The twists of history
Hong Kong was a quiet village until British came and bought silk in exchange for silver in the 16th century. The place was so nicely located that British soon became addicted to trade and their silver reserve drained, before Chinese got addicted to opium provided by the same trade partners. Chinese later quit the drug. But British became so engaged in trade that it colonized the harbor city. Trade is addictive, yet for good reasons. British helped build the ports, legal systems, utilities and transportations facilities.
HK turned a new leaf when many Chinese capitalists fled from the mainland in the 1920's through 1940's, due to political instability. During the 1960's, the Cultural Revolution triggered an even bigger immigration wave, and supplied HK with a vast labor force.
When capitalists met hard-working labors, industries took off.
After China opened up its economy in 1978, the manufacturers found cheaper labor across the border and gradually moved their factories northward. They took advantages of the cheap labor and earned lots of money there. The bosses lived and spent in HK, boosting consumption and investment here. Mercedes Benzes were everywhere in the street, people used to say in the 1980's.
Government's housing policy also played an important role in boosting property prices. In an agreement aimed at prohibiting the British from reaping too much on land sale before the handover, the colonial government could not sell more than 50 acre of land per year -- the size of Victoria Park in Causeway Bay.
The property bubble burst, thanks partly to Tung Chee-hwa's promise to launch 85,000 housing units a year and partly to the Asian financial crisis. The property assets had stored the majority of households' wealth, and the bursting of bubble made wealth evaporate over a short period of time. The dotcom bubbles in 2000 led to less drastic consequences to the society because the damages were confined to equity investors. In 2003, the SARS epidemic marked the trough of the HK economy. In 2004, the recovery continued on the back of the PRC's strong growth and robust international trades.
The accidental prosperities
It seems that the booms and busts that happened in HK were mostly caused by certain external "accidents" or "co-incidents" beyond the control of the city itself. The Sino-Anglo trade, the manufacturing and property eras were driven by changes of external environment. Interest rates and exchange rates sometime lent a hand to enhance the effects, but even these rates are external shocks.
Prepared for the next accidents
That said, HK is by no means an empty soul. It has proven to be a convenient meeting point of people, capital and information. In the past, it had the right qualities to embrace the changes, and prosper from them. In the future, it is ready to capture opportunities when they arise.
"What are the opportunities?" the Martian asks. He walks into a time machine. The machine labeled "made in China" was bought from Wal-&-K-Mart, the future merger of Wal-Mart and K-Mart. Now he travels back to the future to find out what will happen in HK a few years after 2005.
The opening of Chinese capital account
HK has long mastered the trade of merchandise. While other Chinese cities are picking up to build their ports and trade merchandise, HK has advanced to the trade of capital, which requires more sophisticated infrastructure and regulatory systems, the free flow of information, the rule of law and international reputations. More importantly, HK has accumulated a large number of listed companies here, providing a large pool of liquidity. Both investors and fundraisers love liquidity. They trade securities here, making the pool an even larger one. This creates a virtuous cycle. China's largest enterprises are listing and preparing to list in HK. When China opens its capital account, which is just a matter of time, HK is all set to be a natural port for capital flows into and out of China. Foreign investors will invest in Chinese companies listed in Hong Kong while Chinese investors will invest in all companies, foreign and Chinese, listed here.
An exhibition and convention center
After some brief debates, the development of West Kowloon Cultural District was finally approved. In the first few years of operations, the cultural district recorded deep losses, due to low attendance to the cultural and artistic shows. The developer earned a windfall from the residential property sales, but of course, would like to minimize the losses from the theaters and museums. The developer thought of alternatives to improve revenue, but the agreed blueprints handicapped its efforts. It cannot sell more properties within the site or rent out offices. To maximize the value of the existing facilities, Hutchison used some of the space to promote its state-of-art telecommunication services and hardware. The developer later found the district a nice place to organize trade fairs, expos and conventions, given its spacious venues, nice harbor views and convenient commuting. Instead of drawing artists and audience from the rest of the world, West Kowloon now attracts businesspeople, sellers and buyers, from there.
Meanwhile, the demand for such events has been picking up fast. As the mainland's manufacturing advances, factories are getting involved in the design and development of their products. They have their own proprietary know-how, and they need a place to display their products for buyers in the rest of the world. HK is the place. Shenzhen and Guangzhou organized these events too. But there is nothing comparable to the luxurious architecture that West Kowloon fares.
Less costly to fly
Airbus A380, the world's largest aircraft, has become a big hit, as travelers love the bars and karaoke lounges on board. Besides, it carries passengers at lower costs, on a per-passenger basis. Boeing initially laughed at Airbus and called A380 a stupid idea, but was later found secretly developing an even bigger model, in replacement of its flagship 747. Meanwhile, the mushrooming of discount airlines and the opening of skies make flying even cheaper. The lower transportation costs allow people to move around more frequently, and Hong Kong, with its location, facilities and services, is a natural place for people to meet.
Tourism
Tourism would likely be a by-product of the success of other aspects. HK cannot be the shopping center of mainland visitors forever. Once China lowers the import tariffs for cosmetics and luxury goods, HK will lose the pricing advantages. Moreover, tourists' favorites are mainly imported products, from which the foreign franchisers and manufacturers capture the lion shares of profits. However, HK's glamour -- the glamour of a lively city -- will attract visitors.
Then, the Martian thinks of some business plans and decides to settle down here.
Mar 2, 2005
Copyright Quamnet
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