CHINA
22 March 2014
Hong Kong steps onto slippery regulatory slope
Hong Kong's Liu Kin-ming argues that the haven of economic freedom is now stepping onto the slippery regulatory slope.
Hong Kong's Liu Kin-ming argues that the haven of economic freedom is now stepping onto the slippery regulatory slope.
Fresh from celebrations ringing in the Year of the Horse, many of us in Hong Kong are eager to see our city regain strength and gallop ahead like qianlima, a mythical steed that covers a thousand miles a day.
Hong Kong, long considered a shining example of the free market, went slithering down in the just-ended Year of the Snake. Sixteen years into Chinese rule, the former British colony seems to have lost the trademark "can do" spirit that allowed it to press forward no matter the external environment. Instead, it has become bogged down by navel-gazing.
If Hong Kong was primarily an economic city devoid of politics under the British, then the special administrative region it became after rejoining China in 1997 has moved to the opposite end of the spectrum. The city has become a place where every little thing is seen through a political prism of being either pro- or anti-China.
The political class is currently engaged in a shouting match over methods for selecting the city's chief executive and Legislative Council members. Preoccupied with that, they are ignoring matters that are more important for Hong Kong's ongoing success. This is self-defeating.
In the 1980s, when Deng Xiaoping developed the "one country, two systems" formula and promised to keep Hong Kong unchanged for 50 years, he had a key consideration: The city was a goose laying golden eggs for China.
Make no mistake, Hong Kong's bargaining power has always been its economic strength. As long as the city continues to contribute to China's financial well-being, Beijing is prepared to turn a blind eye to Hong Kong's "vice" -- its freedom.
Tiny Hong Kong's bargaining chip was much heftier in 1980, when its gross domestic product was almost one-tenth as big as China's. In 2014, with the world's second-largest economy growing increasingly assertive toward its neighbors and other major global powers, it is wishful thinking to expect China to increase its tolerance toward a territory already in its pocket.
Yet instead of sharpening our tools to maintain our leading edge as China's most international financial center, and thus reinforcing our own bargaining position, the people of Hong Kong, always proud of being "pragmatic," have allowed our free market to be rolled back.
Two crucial setbacks took place last year. First, the government increased the minimum wage after unwisely establishing it in 2011. Second, a commission was set up to further implement a competition law passed in 2012.
If these measures against the free market did not make Milton Friedman turn in his grave, a trio of unprecedented restrictions with a protectionist bent surely caused him to stir. These rules all targeted mainland Chinese, who were once considered our poor cousins but are now swamping our city with cash. Nonresident buyers now have to pay an extra transaction tax when acquiring local property. Mainland mothers are not allowed to give birth in Hong Kong. And no one can take more than two cans of milk formula with them when departing.
These new policies demonstrate the current state of micromanagement -- a far cry from the city's good old days of laissez faire. But it seems the government's visible hand wants to reach even further.
Singapore and New Zealand regulate the marketing of formula for infants up to 6 months old, while Australia's cutoff is 1 year old. Hong Kong's proposed 36-month restriction seems arbitrary and oblivious to the city's high level of development and sophistication. The restrictions on trademark use may also breach the Paris Convention for the Protection of Industrial Property.
The Communist Party of China declared at its Third Plenum last November that markets should play a decisive role in the economy. Shanghai is establishing a free trade zone. It is both ironic and tragic that Hong Kong is bucking this trend. This suggests the city may uphold "one country, two systems" to a fault, with the mainland becoming more capitalistic while Hong Kong goes the other way.
This article was originally published in the Nikkei Asian Review on March 6, 2014.
Fresh from celebrations ringing in the Year of the Horse, many of us in Hong Kong are eager to see our city regain strength and gallop ahead like qianlima, a mythical steed that covers a thousand miles a day.
Hong Kong, long considered a shining example of the free market, went slithering down in the just-ended Year of the Snake. Sixteen years into Chinese rule, the former British colony seems to have lost the trademark "can do" spirit that allowed it to press forward no matter the external environment. Instead, it has become bogged down by navel-gazing.
If Hong Kong was primarily an economic city devoid of politics under the British, then the special administrative region it became after rejoining China in 1997 has moved to the opposite end of the spectrum. The city has become a place where every little thing is seen through a political prism of being either pro- or anti-China.
The political class is currently engaged in a shouting match over methods for selecting the city's chief executive and Legislative Council members. Preoccupied with that, they are ignoring matters that are more important for Hong Kong's ongoing success. This is self-defeating.
In the 1980s, when Deng Xiaoping developed the "one country, two systems" formula and promised to keep Hong Kong unchanged for 50 years, he had a key consideration: The city was a goose laying golden eggs for China.
Make no mistake, Hong Kong's bargaining power has always been its economic strength. As long as the city continues to contribute to China's financial well-being, Beijing is prepared to turn a blind eye to Hong Kong's "vice" -- its freedom.
Friedman's nightmare
The mind-boggling transformation of Chinese society over the past three decades has changed the equation.Tiny Hong Kong's bargaining chip was much heftier in 1980, when its gross domestic product was almost one-tenth as big as China's. In 2014, with the world's second-largest economy growing increasingly assertive toward its neighbors and other major global powers, it is wishful thinking to expect China to increase its tolerance toward a territory already in its pocket.
Yet instead of sharpening our tools to maintain our leading edge as China's most international financial center, and thus reinforcing our own bargaining position, the people of Hong Kong, always proud of being "pragmatic," have allowed our free market to be rolled back.
Two crucial setbacks took place last year. First, the government increased the minimum wage after unwisely establishing it in 2011. Second, a commission was set up to further implement a competition law passed in 2012.
If these measures against the free market did not make Milton Friedman turn in his grave, a trio of unprecedented restrictions with a protectionist bent surely caused him to stir. These rules all targeted mainland Chinese, who were once considered our poor cousins but are now swamping our city with cash. Nonresident buyers now have to pay an extra transaction tax when acquiring local property. Mainland mothers are not allowed to give birth in Hong Kong. And no one can take more than two cans of milk formula with them when departing.
These new policies demonstrate the current state of micromanagement -- a far cry from the city's good old days of laissez faire. But it seems the government's visible hand wants to reach even further.
Ironic timing
The administration is considering very stringent restrictions on milk powder, including a ban on advertising products for infants under age 3 and limiting the use of trademarks and logos on their packaging.Singapore and New Zealand regulate the marketing of formula for infants up to 6 months old, while Australia's cutoff is 1 year old. Hong Kong's proposed 36-month restriction seems arbitrary and oblivious to the city's high level of development and sophistication. The restrictions on trademark use may also breach the Paris Convention for the Protection of Industrial Property.
The Communist Party of China declared at its Third Plenum last November that markets should play a decisive role in the economy. Shanghai is establishing a free trade zone. It is both ironic and tragic that Hong Kong is bucking this trend. This suggests the city may uphold "one country, two systems" to a fault, with the mainland becoming more capitalistic while Hong Kong goes the other way.
Acknowledgements
Liu Kin-ming is a former news executive and journalist in Hong Kong. He is the editor of "My First Trip to China: Scholars, Diplomats, and Journalists Reflect on their First Encounters with China." He is also a public affairs consultant.This article was originally published in the Nikkei Asian Review on March 6, 2014.