De-industrialization was Hong Kong’s Biggest Mistake: the rise and decline of Hong Kong’s economy

“De-industrialization was Hong Kong’s Biggest Mistake” (Asianometry, 14 March 2022)

Here is a very educational and succinct video explaining how Hong Kong rose to become a major manufacturing centre in East Asia in the mid to late 20th century – and then switched over to a service economy dominated by the financial sector while lucrative and other potentially promising manufacturing industries moved to Shenzhen in the 1990s. This reliance on the financial sector at the exclusion of manufacturing has brought with it myriad problems such as excessive property speculation resulting in the highest property prices in the world, with all the consequences for ordinary working people and the effects on human demographics and even fertility, and attracting tax evaders and money laundering schemes as well.

The story begins after 1949 when Shanghai-based industries fled to Hong Kong after Communist takeover in China and set up factories in high-rise buildings churning out cheap ‘n’ cheerful plastic trinkets, clothes, transistor radios and other light manufactures. People who fled to Hong Kong at about the same time provided cheap labour. By the 1980s however, manufacturing firms could no longer rely on just cheap labour to stay competitive: the rise of computers and the inputs computer manufacturing required needed technological knowledge and being able to make components such as semi-conductors. Having to import components put possible electronics companies in Hong Kong at a competitive disadvantage against Japan and Taiwan. Being a British colony at this time, subject to British regulations and administrative arrangements that made Hong Kong a trading post between China and Britain back in the 19th century, Hong Kong was unable to impose tariffs or other import restrictions on foreign goods competitive with its own manufactures, and Hong Kong subsequently turned to the financial and services sector, and selling or leasing land in particular.

The opening up of China to the West and that country’s subsequent integration into the global economy after 1980 dealt a further blow to Hong Kong as an intermediary between China and Britain. With China lifting restrictions on foreign firms entering its own financial sector to offer products to Chinese customers, Hong Kong increasingly depends on property speculation in its territory to keep money circulating even as housing price rises far outstrip rises in salaries and wages of ordinary Hong Kong residents. The Hong Kong government is reluctant to enact reforms that would make housing more affordable for most people: for one thing, this would probably involve raising interest rates and many property investors would be forced to take enormous hits as a result of being over-leveraged in debt. The bizarre nature of political elections in Hong Kong, in which functional constituencies representing various industries in Hong Kong – including the FIRE (finance, insurance, real estate) sector – help form the electoral college that elects the Chief Executive, no doubt contributes to the Hong Kong government’s inertia in reforming the economy.

The first half of the video is the most informative for a general audience while the second half becomes more specific in detailing the HK government’s proposals to reform and revive aspects of the city’s economy. However most proposals tinker with symptoms of the problem – symptoms such as the huge wage inequalities between the richest and the poorest workers, and new career pathways for young people in a post-industrial society – and do not directly address the problem of land ownership and management in a society run with a legal system established by a colonialist / imperialist nation intent on grabbing Chinese land and its resources.

As the video was made by a film-maker whose background is in economics and finance, it considers mainly economic and financial factors in Hong Kong’s loss of manufacturing, and not the political and legal context – especially not the context of having been a British colonial outpost – that also put Hong Kong at a disadvantage compared to Singapore and Taiwan. If Hong Kong had been able to establish a “semi-independent” status, belonging to China or Britain on paper but enjoying de facto independence, elected visionary politicians with universal suffrage, and encouraged industrial investment, the city might have become a very different but no less prosperous place.

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