Hong Kong Poverty Line Shows Wealth Gap With One in Five Poor

Hong Kong Poverty Line Shows Wealth Gap With One in Five Poor

Hong Kong, a city with a surging number of millionaires and home to some of Asia’s richest people, finds a fifth of its population living in poverty. About 1.3 million people, or 19.6 percent of the population, were below the poverty line last year, according to a report commissioned by Chief Executive Leung Chun-ying and released on Sept. 28. The benchmark, determined for the first time, was set at half of the city’s median household income, excluding impact of tax and welfare transfer, the report said.Growing inequality between the rich and the poor poses a major challenge to Leung, who came into office in July last year pledging to narrow the city’s record wealth gap. Tens of thousands of people protested on July 1, the anniversary of Hong Kong’s return to China, demanding the government address inequality which has been exacerbated by the doubling of home prices since early 2009.

“It’s a shame for a rich city like Hong Kong,” Willy Lam Wo-Lap, an adjunct professor of history at the Chinese University of Hong Kong, said by phone. “Better housing is what most people below the poverty line are asking for.”

Hong Kong’s Gini coefficient, a measure of income inequality, rose to 0.537 in 2011 from 0.525 in 2001, the government said last June. The score, a high for the city since records began in 1971, is above the 0.4 level used by analysts as a gauge of the potential for social unrest.

Median Income

The median household income for a family of three was HK$23,100 ($2,979) per month in the first quarter, according to government statistics. Based on that number, a family of three with a monthly income of less than HK$11,550 would be below the city’s poverty line.

“The poverty line is a useful reference point for knowing whether the situation is improving or deteriorating,” Lam said. “The line itself does not solve Hong Kong’s problems. What the government should do is ensure its target of public housing is met.”

The number of millionaires in the city rose 35.7 percent to 114,000 last year, according to a report by Cap Gemini SA (CAP) and Royal Bank of Canada. Hong Kong is home to the four richest men in Asia, Li Ka-shing, Lee Shau-kee, Lui Che-woo and Cheng Yu-tung, who have a combined net worth of $90 billion, according to the Bloomberg Billionaires Index.

“To alleviate poverty, the government must promote balanced economic development,” Leung said on Sept. 28 at a summit. “Poverty is not only an issue of the low-income population’s hardship, but it also affects Hong Kong’s harmony and stability, thus affecting its long-term competitiveness,” he said.

Cash Benefits

If accounting for recurring cash benefits, the population living in poverty falls to 1 million, or 15.2 percent, the report said. To lift all of these people up to the poverty line would require HK$14.8 billion, ($1.9 billion) according to Chief Secretary Carrie Lam.

“We don’t take the view that alleviating poverty means to narrow the wealth gap,” she said at a press conference on Sept. 28. There may not be a lot of support for Hong Kong, a capitalist society and a free economy, to tackle the wealth gap with a more socialist attitude, she said. The point is to create upward mobility, she said.

Labor unrest and protests have increased in Hong Kong in the past two years as inflation and home prices soared.

“Having an official indicator will help the government define its social welfare policies and will also raise public expectations for something to be done,” Chung Kim-wah, an assistant professor at The Hong Kong Polytechnic University, said by phone on Sept. 28. “It’ll put a certain pressure on the administration.”

Falling Income

The average gross household income of the poorest 10 percent of the population fell 16 percent to HK$2,170 a month in 2011, from 10 years earlier, according to a government report. The comparable income for the richest 10 percent jumped to HK$137,480 a month, a 12 percent increase.

Leung increased welfare spending by about a third in his first budget delivered in February, boosting recurrent spending by 31 percent to HK$56 billion in the fiscal year starting April 1. He handed out allowances to more than 400,000 elderly residents and pumped $2 billion into a poverty alleviation fund.

Hong Kong’s wealth inequality may increase as the population ages. The proportion of people aged 65 and older reached 14 percent last year and is expected to account for 30 percent by 2041, Financial Secretary John Tsang said in February.

Home prices in the city are the highest among major global cities, according to London-based property broker Savills Plc. (SVS) The government has imposed measures, including extra taxes on foreign property buyers and higher mortgage down payment requirements, as it seeks to reduce the risk of an asset bubble.

Subsidized Housing

Leung this year restarted the sale of subsidized public housing, a program that was halted in 2004 by his predecessor. A government committee studying the city’s long-term housing plan has recommended building 470,000 new homes over the next decade, of which 60 percent should be public housing, Anthony Cheung, secretary for transport and housing, told reporters this month.

Hong Kong increased the minimum wage 7.1 percent to HK$30 an hour on May 1. The raise will bolster the salaries of about 327,200 employees, or 10 percent of the city’s workers, according to a report by a government commission before the new ruling.

The city has a wealth gap wider than Singapore, Australia, and the U.K., though its unemployment rate for the three months ended August was just 3.3 percent.

Working Poor

Singapore doesn’t have a poverty line and an estimated 6 percent to 8 percent of working households can be called “working poor,” the Straits Times reported Sept. 25, citing a report. Europe uses an at-risk-of-poverty indicator set at 60 percent of national median disposable income after accounting for social benefits.

Labor unrest in Hong Kong has been increasing.

Workers at docks operated by billionaire Li Ka-shing’s Hongkong International Terminals Ltd. went on strike for more than a month earlier this year, demanding higher wages and better working conditions. The 40-day dispute ended in May after the workers accepted a 9.8 percent wage increase, compared with their original demand of 23 percent raise.

To contact the reporters on this story: Fox Hu in Hong Kong at fhu7@bloomberg.net; Michelle Yun in Hong Kong at myun11@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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