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Seminar organizer Richard Charles Lee Canada Hong Kong Library University of Toronto February 11, 2013 1

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Organizer: Richard Charles Lee Canada Hong Kong Library. Sponsors: - Hong Kong Economic & Trade Office, Toronto - Hong Kong Canada Business Association (HKCBA) - Asian Institute, Munk School of Global Affairs, University of Toronto - In Depth Conference: student organization. 2

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Externally: Absolute picture of the freest economy. As a reference to emerging/Asian economies. Is there a Hong Kong model? World opportunities given to HK. Internally: Falling skill to analyze economic issues in HK. Reiterate the appropriate use of economics as a solution. HK peoples ingenuity, enterprising, dynamism. 3

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Ten indicators grouped under 3 pillars: System: trade, financial, investment, and adherence to property right. Policy: fiscal, monetary, and size of government. Ethics: business, freedom from corruption, and labor. 4

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Laissez faire: supply-driven strategy, pro-growth policies. Govt: provides needed positive assistance, taking a back seat, supportive approach. Promote civic freedom between ruler and ruled. Colonial govt acted as a referee in politics. Economic relativity: economic activities produce relative outcomes, absolute outcome activities become personal choices. 5

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Figure 2.2 Hong Kongs GDP Growth Rates: 1962-2009 6

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GDP volatility is asymmetric: volatility is low when GDP rises. Investment drives growth. Govt. spending not growth promoting. Volatility is high in housing and stocks. Financial market more in line with Tokyo and Singapore. Trade and consumption more in line with Taiwan. 7

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Measureable inputs: capital, labor, land. TFP indicates the sum of non-measureable input contributions: human capital, technology, efficiency, economies of scale, etc. Most convenient is to use the accounting approach. Can be calculated on both the aggregate and disaggregate basis. Economic freedom: allow openness and opportunities, should facilitate TFP growth. 8

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Agri, fishing, mining, quarrying: 5.2 (0.2) Electricity, water & gas: -1.4 (2.34) Construction: 1.6 (4.96) Manufacturing: 5.1 (13.24) Whole/retail, im/ex, rest/hotel: 2.5(25.75) Fin, insur, real est, bus services: 1.0 (19.84) Transport, storage & com.: 0.9 (9.52) Comm,social & personal service: 0.5 (15.56) 10

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Industry: TFP% Total/SMEs/Non-SMEs Manufacturing: 5.1/4.6/5.3. Retail: 1.5/0.7/1.4 Import/export: 2.4/2.4/1.9 Business services: 2.5/2.4/2.6 All transport: 0.4/0.6/-0.4 12

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Figure 6.1 The Mean Years of Schooling in Hong Kong: 1981-2006 13

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Table 6.11 Comparison of Education Attainments by Age Groups: 2007 Attained Upper Secondary Education Attained Tertiary Education 25-6425-3435-4445-5455-6425-6425-3435-4445-5455-65 Australia Brazil Canada Denmark Finland France Germany Italy Japan* S. Korea Mexico Netherland Poland Sweden Switzerland Turkey UK USA Hong Kong 68 37 87 75 81 69 84 52 84 78 33 73 86 85 86 29 68 88 55 81 47 91 85 90 83 85 68 94 97 39 83 92 91 90 38 75 87 75 70 37 90 80 87 74 86 56 94 92 37 77 90 87 26 69 88 64 31 86 71 81 63 85 48 82 65 29 71 86 83 85 22 66 89 41 54 22 78 66 65 53 81 34 65 39 18 61 74 81 16 61 87 29 34 10 48 32 36 27 24 14 41 35 16 31 19 31 11 32 40 22 41 10 56 40 39 41 23 19 54 56 19 37 30 40 35 14 37 40 37 34 10 53 34 43 29 26 14 46 40 16 31 18 31 34 10 32 42 25 32 10 45 30 36 20 25 11 41 21 15 30 13 29 30 9 31 40 14 27 8 39 24 28 17 23 9 24 11 9 26 12 26 8 25 30 10 OECD Average7079746756 2734292420 Notes: * = The year of reference for the Attained Upper Secondary Education is 2003. = 2006 data. Sources: Education at a Glance 2009, OECD, Paris; Census and Statistics Department, Hong Kong. 14

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Total public expenditure/GDP: highest in 2002 with 21.8%. Notably, social welfare has gone up from 5.4% in 1986 to 13.2% in 2009. More often with fiscal surplus than deficit, worst in 2001-2004 fiscal years. 20

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Table 12.1 Land Use in Hong Kong 19961997199819992000200120022003200420052006200720082009 Total Area (square kilometers)1,0951,0961,0971,0981,0991,1001,1031,1081,1071,108 Developed land (% of total area)15.9916.0516.3216.7520.9321.3621.6621.9523.6823.8423.2923.3823.5623.74 Residential5.305.295.385.466.106.186.176.056.967.046.77 6.86 Commercial0.18 0.27 0.36 Industrial1.00 1.73 1.721.902.26 2.17 2.26 Government, institution, community1.641.731.821.911.82 1.90 2.08 2.17 Transportation2.472.652.833.014.464.454.534.694.794.874.965.14 5.23 Open space1.46 1.55 1.82 1.81 1.901.99 2.082.17 Vacant land3.933.743.652.46 2.822.992.802.622.351.811.711.531.44 Other urban & built up areas 1.182.27 2.532.802.983.163.073.163.25 Non-developed land (% of total area)84.0283.9483.6983.2479.0778.5478.3378.0776.3276.1776.7176.6276.4476.26 Agriculture land7.03 6.846.656.376.186.076.416.59 6.146.056.14 Woodland/shrub land/grassland67.4967.4367.3767.3067.4267.1867.0066.8866.0365.7066.70 66.5266.34 Wetland0.00 0.55 0.540.900.45 Barren land4.024,014.01 2.18 1.350.81 0.72 Water area2.37 2.55 2.542.532.442.62 Temporary structures & other uses*3.113.10 2.91 Notes:* = These classifications are unavailable after 2000. The figure for the total area in 2004 (1,107) is slightly larger than the figure of 1,104 reported in Hong Kong 2005, Informational Services Department, Hong Kong, due probably to definitional difference in different categories. Source: Planning Statistics, Planning Department, Hong Kong. 24

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China/HK: absolute vs comparative advantage. HK: a reference to Chinas economic reform. HK: major investor, in early stage of reform. Visa-free, CEPA, Pan-PRD, 5-Year Plan. Marginalization? Catching up / overtaking? HK:market-led(expost);China:state-led(exante) Few discussed on implication to HK economy. 27

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Short-term investment behavior. Wealth promoting, rise in income. Inflation, negative interest rate, wage increase De-industrialization, fall in real economy. Speculations in stocks and real property. 1998 financial crisis: real economy could not sustain the collapse of the nominal economy. 30

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Young government: leadership challenged. Periodic crises: Asian financial crisis, health hazards, terrorist attacks and war, oil crisis, natural disasters, 2008 crisis, etc. Economic recession (1998-2005): prolonged economic weakness, fiscal deficit, collapse of property market. Stability and prosperity: challenged? 31

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Internal: Demand-driven vs supply-led strategy? Short-term, ad hoc solutions vs long-term insights? Property dominates: cart in front of the horse? Fiscal policy: welfare vs growth? Intervention vs assistance (private cost vs social cost)? 32

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External: External-led vs domestic-led economy? Or a dependent economy? Integration with mainland: win-win vs marginalization? Count the cost? Political Economy: System-driven vs personality-driven? Result-led vs public opinion-led? Formalization vs informal economy? Conflicts in two systems: 2047 comes earlier? 33

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Economic diversification & expansion: re- industrialization through CEPA (over 1,700 export items to mainland tariff free). Encourage physical investments, target CEPA. High cost: not a problem when consider the huge mainland market. Challenge: property price getting out of context, speculation=wealth increase, the most distorted sector. Stability in question! 34

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HKs economic freedom is a built-in, is an infrastructure. Creation of economic opportunities has to be sustainable. Relative outcomes preferable to absolute outcomes. Aim for comparative advantage, avoid absolute disadvantage. 35

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Together with a reliable civic and economic system, the path of economic freedom in Hong Kong is the ability to generate new economic opportunities to help others to prosper. 36

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Wishing You All a Healthy and Prosperous Year of the Snake 2013 Thank you! 37