Hong Kong’s financial future hangs on getting the right mix

Published: Saturday February 15, 2014 MYT 12:00:00 AM
Hong Kong’s financial future hangs on getting the right mix

BY TAN SRI ANDREW SHENG

Hong Kong’s financial future hangs on getting the right mix

HONG Kong is currently engaging the public on its population policy. The policy paper is a very informative and educational document, full of useful statistics and asks what the citizens want for their own people, in terms of quantity and quality.

The Steering Committee on Population Policy, chaired by the chief secretary for administration, proposes that the objective of Hong Kong’s population policy should be “to develop and nurture a population that will continuously support and drive Hong Kong’s socio-economic development as a socially inclusive and cohesive society that allows individuals to realize their potential, with a view to attaining quality life for all residents and families.”

That is a very noble objective, but the real tough questions are “what number do we want” and how do we define “quality?”

It all depends on the context and the relative position of Hong Kong to its neighbours and competitors as a world city.

The facts are illuminating. Hong Kong’s population has grown very slowly and is aging fast. With 7 million in population, of which there are 312,000 foreign domestic helpers (7% of labour force) and an unemployment rate of just over 3%, the labour force will begin to peak in 2018 and steadily decline as the population ages. By 2041, one in three will be over the age of 65.

The reason why the labour force is not growing is because the fertility rate in Hong Kong is the lowest amongst the advanced economies, surprisingly even lower than Japan. Perhaps that is because the work force is already working too hard to raise more family.

Furthermore, the low-skilled foreign labour participation level (other than domestic helpers) is only 0.1% of the labour force, compared with 28% in Singapore and 26% in Macao.

The current average GDP growth rate of 4% per annum comprises 1% growth due to the growth in the labour force and 3% from productivity growth. When the labour growth rate turns negative after 2018, productivity growth will have to increase substantially for Hong Kong to maintain its growth rate.

By comparison, the Singapore Population policy is looking at 1% to 2% workforce growth, plus productivity growth of 2-3%, achieving somewhere between 3% to 5% growth.

Policy dilemma

The policy dilemma is to how to increase both the labour force (quantity) as well as the quality?

As we all know, income and wealth depends on increasing land, labour, capital and human capital. If an economy has difficulty increasing land supply, plus a constraint on population growth through immigration or the birth rate, then everything hinges upon how the talent and production can be nurtured through productivity gains.

Some political leaders use population targets as a policy tool, such as the famous suggestion by former prime minister Tun Dr Mahathir Mohamad that Malaysia should have a population of 70 million (as compared with current population of 29 million). Singapore’s population policy White Paper, published in January 2013, that suggested a population of nearly 6.9 million by 2030 (citizens of 3.6 to 3.8 million, permanent residents of 0.5-0.6 and rest non-resident workers) cost the government quite a few votes in the last election.

I would agree that if more than one quarter of the labour force comprises foreigners, like Singapore and Macao, it is not surprising that there is growing resentment of labour imports, but surely the number that can be imported depends on the housing availability, the unemployment level and the quality of the imported labour? That requires a clear view of the growth model by 2041, which needs to be spelt out in more concrete terms.

An intriguing statistic is the labour force participation rate of 58.8%, which is slightly lower than Japan and 8 percentage points lower than Singapore. The Steering Committee suggests that since 1.6 million people between the age of 15 to 64 are “economically inactive”, perhaps more people can be encouraged to work and to work longer. The view that women who stop work to raise family is “economically inactive” is surely neither fair nor gender sensitive.

Certainly, the Hong Kong labour force seems to retire earlier than its competitors, with a 61.7% participation ratio for those between 55-59, compared with 78.3% in Japan. At the age range of 60-64, only 37.7% of Hong Kong labour force is working, compared with 58.1% in Singapore.

Adverse impacts?

My view is that it is very difficult for the public to answer complex questions like “if we extend the working life of the elder, how can we alleviate the possible adverse impacts on the career prospects of the younger generation?”

First of all, it is by no means clear that getting the older people to extend their retirement worsens career prospects for the younger. After all, if the older population remains economically active, creative and have higher spending power, there would be more job opportunities for the rest of labour force.

Second, if Hong Kong does not address its total human capital policy with greater clarity, there is a risk that it will lose in the talent war as every city and country is today trying to raise their game in terms of research and development, innovation and hiring the best global talent. Concrete policies and measures will have to spelt out, sooner rather than later.

For example, the Third Plenum decision to relax the one-child policy in mainland China will have far fetching implications on population growth and demand patterns, such as health care, education and services, all of which are opportunities for Hong Kong. Can an aging population in Hong Kong, essentially a service economy, continue to serve a growing mainland and neighbouring economies effectively and competitively?

Of course, to make good decisions, there could be more technical studies to examine the trade-offs, costs and alternatives. All these mean that some tough choices will have to be made and these are ultimately political choices.

Population policy is all about people, which means it is all about politics.

Andrew Sheng is president of the Fung Global Institute.