Chief executive's call for greater government involvement in the economy raises questions about where Hong Kong should now be heading
TONY CHEUNG AND EDDIE LEE
PUBLISHED : Monday, 24 August, 2015, 3:01am
UPDATED : Monday, 24 August, 2015, 3:01am
The police raid on the Uber office raised eyebrows. Photo: AFP
After the government's investment promotion arm, InvestHK, gave its stamp of approval to Uber, the city was taken by surprise when police suddenly raided the car-hailing app's offices and arrested seven drivers in a crackdown on unlicensed transport services.
The operation came amid pressure from the powerful taxi lobby, which criticised the government for failing to curb companies that allegedly operate without a licence and proper insurance coverage.
The fracas prompted critics to ask whether the government was siding with business innovation or scaring away start-ups.
Contrast that episode with the experience of the world's largest drone maker, DJI. After being frustrated by the lack of government support and funding in 2006, it set up shop in neighbouring Shenzhen. Only after it achieved success did the city welcome it back with open arms as it sought out talent to boost its research and development.
The world's largest drone maker, DJI, set up shop in neighbouring Shenzhen after being frustrated by the lack of government support and funding in 2006. Photo: Dickson Lee
These two tales of too much and too little government intervention reflect the existential questions Hong Kong has grappled with over its economy and the right level of official intervention.
The debate surfaced anew when Chief Executive Leung Chun-ying gave an interview with Xinhua on August 9 in which he declared that Hong Kong's laissez-faire economic policy was out of date.
Arguing that it was time for the government to take a leading role in the city's big business decisions, Leung revived the idea of replacing the "positive non-intervention" policy with an "appropriately proactive" one, which he first floated in his 2012 election manifesto.
"One of the reasons I put forward such a new idea is because Hong Kong's competitors have been very proactive in [addressing] economic and livelihood issues," Leung told Xinhua.
"As an economy to compete with places like Singapore and South Korea, Hong Kong has no choice but to consider what role the government should play."
His remarks come at a time when economists around the world have been debating the limits of the free market and whether governments and regulators ought to be more active.
But the business sector and some academics in Hong Kong have expressed reservations about Leung's statement, especially after the free-market think tank, the Heritage Foundation, ranked Hong Kong as the world's freest economy for the 21st year in a row.
Business expresses doubts
Eddy Li Sau-hung, president of the Chinese Manufacturers' Association, told the South China Morning Post that he doubted whether a more active government could help the business community.
"Hong Kong's success hinges on a non-intervening government … and for industries that require expertise, the [need for] government intervention is very limited," the veteran industrialist said.
Li suggested that instead of thinking about becoming more "proactive", the government should focus on creating a positive business environment, ensuring fair competition in the market and removing red tape.
Eddy Li Sau-hung, president of the Chinese Manufacturers' Association, thinks "Hong Kong's success hinges on a non-intervening government." Photo: David Wong
Allan Zeman, chairman of the Lan Kwai Fong Group, also warned against an active government in the business world.
"If we totally change the system, it won't be Hong Kong," the entertainment mogul said.
By citing the "positive nonintervention" policy, Leung was referring to the philosophy introduced by colonial era financial secretary John Cowperthwaite in the 1960s. Cowperthwaite believed that the government's role should be restricted to creating the regulatory and physical infrastructure to allow markets to function.
His idea was taken forward by successor Philip Haddon-Cave in the 1970s, who coined the term "positive non-interventionism", which became the guiding principle for the colonial era as Hong Kong joined the likes of London and New York as one of the world's most important international financial centres.
Leung's predecessor, Donald Tsang Yam-kuen, raised eyebrows in 2006 when he suggested the city move away from positive non-interventionism in favour of "big market, small government". But Tsang still championed the power of the market, once describing housing as a personal investment decision rather than a wider social problem.
In sharp contrast to Tsang's civil service background, Leung made his name as a surveyor in the private sector. Shortly after he announced his bid for the top job in 2011, he advocated an "appropriately proactive" approach - as an apparent critique of Tsang's economic policy.
Different thinking
After Leung took office in July 2012, he appeared keen to demonstrate his different thinking by highlighting maritime industries as potential new drivers for the economy. He also set up a new Financial Services Development Council and promised that his cabinet would discuss a closer economic partnership with the mainland.
However, in hindsight, Leung's "appropriately proactive" approach seemed to have achieved little in boosting Hong Kong's economy, as the city's GDP growth slowed from 3.1 per cent in 2013 to 2.5 per cent last year. In the first quarter of this year, growth slowed further to 2.1 per cent.
By comparison, Singapore's economy did slightly better last year, achieving 2.9 per cent real growth, and 2.6 per cent in the first quarter of this year.
South Korea's growth in 2013 was 2.9 per cent and last year 3.3 per cent.
Allan Zeman, chairman of the Lan Kwai Fong Group, also warned against an active government in the business world. "If we totally change the system, it won't be Hong Kong." Photo: Xinhua
Zeman believes that the South Korean and Singaporean economies were "really helped" by government involvement.
Dr Tan Khee Giap, associate professor at the Lee Kuan Yew School of Public Policy, National University of Singapore, told the South China Morning Post that a "more proactive" Singapore government was the reason why "whenever there was a recession, Hong Kong sank deeper and when economic recovery came, Singapore rebounded higher".
But Dr David Wong Yau-kar, chairman of the Business and Professionals Federation of Hong Kong, argued that such debates might be missing the point.
"Instead of discussing whether the government should be 'positive-non-interventionist' or 'appropriately proactive', we should be discussing what the government's proper role is," the National People's Congress delegate said. "To me, it is to act as a catalyst for … new industries."
"The Singapore government has been active in promoting [new] industries, such as petrochemicals," Wong said. He added that while the Hong Kong government had become more "active" and created a competition law and a statutory minimum wage, little had been done to promote new economic drivers.
Emerging industries
Li and Zeman both urged the Hong Kong government to develop emerging industries that had high-growth potential, like e-commerce, while Wong supported Leung's plan to set up a new Innovation and Technology Bureau to boost technology industries.
Political commentators believe Hongkongers remain cautious about the government's "visible hand" after the city's first chief executive, Tung Chee-hwa, controversially awarded development rights for the Cyberport hi-tech project to PCCW in 1999.
PCCW was owned by Richard Li Tzar-kai, son of the city's richest man, Li Ka-shing, and the project ended up being best known for its luxury apartments.
Despite commentators' apprehension when development rights for Cyberport were awarded to PCCW in 1999, the project ended up being best known for its luxury apartments. Photo: Jonathan Wong
The government also appeared to become more cautious about similar plans afterwards. In 2000, a consortium of American and Taiwan investors decided to build a billion-dollar microchip manufacturing centre in Shanghai after failing to gain sufficient incentives from the Hong Kong government.
Dr Andy Kwan Cheuk-chiu, director of Hong Kong-based ACE Centre for Business and Economic Research, suggested that the government's mistakes showed that the city's economic problems were more deeply rooted in the city's governance, as well as its lack of political talent.
Citing the Lion City's No2 position in the Heritage Foundation's ranking, Kwan said: "The Singapore government is not that interventionist … but they are able to attract high-quality talent from the private sector and come up with high-quality policies."
Lau Siu-kai, vice-chairman of mainland think tank the Chinese Association of Hong Kong and Macau Studies, echoed Kwan's observation about the political perspective behind Hong Kong's economic problems.
Lau, who used to head the government's Central Policy Unit, questioned whether Leung's call for an end to the "positive non-intervention" policy was mainly a political statement for civil servants and people who objected to the idea.
"Donald Tsang, for example, has been quite 'positive' and designated six new industries that Hong Kong should boost … but Leung focused on the 'non-intervention' part in previous administrations and [overlooked] the 'positive' part," Lau told the Post.
He suggested that Leung's government could not become "too proactive" because the Basic Law would forbid it. The city's mini-constitution rules that the administration should maintain a low-tax policy and "strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate" with economic growth.
"I agree that the government can be more proactive on economic policies … but I don't think it can match the level of Singapore, Japan or Taiwan, where large government investments were made to support specific companies," Lau said.
What past -and present- leaders of Hong Kong said about the economy
Financial Secretary John Cowperthwaite, 1966: (He believed the government's role should be restricted to creating the regulatory and physical infrastructure to allow markets to function.) "In the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralised decisions of a government; and certainly the harm is likely to be counteracted faster."
Phillip Haddon-CaveFinancial Secretary Philip Haddon-Cave, 1980: "[Positive non-interventionism means] that the government, when faced with an interventionist proposal, does not simply respond that such a proposal must, by definition, be incorrect. Quite the contrary … the government weighs up carefully the arguments for and against an act of interventionism in any sector of our economy and on the demand or supply side in the light of present and likely future circumstances. The government then comes to a positive decision as to where the balance of advantage lies."
Chief Executive Tung Chee-hwa, 1999:
"Hong Kong's remarkable economic success over the past few decades owes a great deal to our free and market-oriented economy with fair competition ... Since its inception, the SAR government has carried on the tradition of fiscal prudence and small government."
Chief Executive Donald Tsang, 2006 "Everybody says Hong Kong has a 'positive non-intervention policy'. The policy was put forward a long time ago by a financial secretary, Sir Philip Haddon-Cave. All along, we have never said we'd made it a blueprint for our economic development … What we have done in practice - and if you remember the direction outlined by former financial secretaries - is adhere to the principles of 'big market, small government'. The government will try our best to meet the market's needs."
Chief Executive Leung Chun-ying's election manifesto, 2012:
"Hong Kong has one of the freest economies in the world with a business friendly environment which can be further enhanced by the government taking a more active and positive role. While respecting the functions of a market economy, the government should act as the market facilitator to bring about improvement in our economic and job market structure."
Chief Executive Leung Chun-ying's interview with Xinhua, August 9, 2015:
"One of the reasons I put forward [the idea of a 'appropriately proactive' government] is because the competitors of Hong Kong have been very proactive in [addressing] the economic and livelihood issues … As an economy to compete with places like Singapore and South Korea, Hong Kong has no choice but to consider what role the government should play."
http://m.scmp.com/news/hong-kong/economy/article/1851986/should-hong-kong-government-shift-towards-economic
