End of The Road for Stagnant Hong Kong?

Related: SZ Overtakes HK in Economic Competitiveness

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Shenzhen passed Hong Kong in an overall economic competitiveness ranking in 2014, according to a report released last month by the Chinese Academy of Social Sciences (CASS), a Beijing think tank. Is Hong Kong really losing its competiveness or is Shenzhen just the new “can do” city?

I have lived in Hong Kong since 1994, coming into the city as an interested witness as to how it would respond to being handed over to China from its British manufacture. Following the events of 1997, when asked the regular question “so what has changed since the handover?” I could easily respond “nothing”. It seems, almost 18 years on, that the answer was never more true. Hong Kong has, it feels to me, gone into a long period of stagnation, its “can do” moniker being replaced by a “won’t do” determination. 

Without receiving strong leadership, either from Beijing, which continues to adopt a general policy of letting Hong Kong sort out its own affairs, or from a mandated political party, the civil service have effectively had to form policy. And whilst things have turned over evenly, impartially and routinely, they have not done so with vigour, voracity or most importantly vision. Common sense decision making has been replaced by “record and report” delay tactics, and there is a desperate lack of willingness to take responsibility for saying “yes”. Another report or inspection is always the solution. Fellow professionals are continually urging procedural changes, trialling of new ideas and adoption of new techniques commonplace in Europe or the US but face an innovation brick wall.  

Short term thinking is institutionalised. The Chief Executive’s election clarion call to address the housing market imbalance resulted in the development of last year’s Long Term Housing Strategy The plan is projected over ten years. Just TEN YEARS! There is nothing long term about that and the strategy proffered is incredibly knee jerk and reactionary, dispensing with best use scenarios for the Territory’s remaining prized land resources and replacing them with short term and inadequate housing solutions carried out under the same old tried and tested mechanisms.

And yet The Global Competitiveness Report (GCR), a yearly report published by the World Economic Forum since 2004, would suggest that Hong Kong is more competitive than ever. Ranked 24th back in the 2004 Report, the territory has consistently risen and has featured in the top 10 since 2012, retaining its 7th position. It tops the infrastructure pillar, reflecting the outstanding quality of its facilities across all modes of transportation. The economy also continues to dominate the financial market development pillar, owing to the high level of efficiency, trustworthiness, and stability of its system. The dynamism and efficiency of Hong Kong’s goods market (2nd) and labour market (3rd) further contribute to its excellent overall positioning. Hong Kong is also one of the most open economies in the world and can rely on its high degree of technological readiness (5th). 【1】

Hong Kong GCI. Source: The Global Competitiveness Report 2014-2015

However in order to enhance its competitiveness, the Report points out that Hong Kong must improve on higher education (22nd) and innovation (26th, down three places in 2014). In the latter category, the quality of its research institutions (32nd, down one) and the limited availability of scientists and engineers (36th, down four) remain two key issues to be addressed in building a truly innovation-driven economy. Furthermore 7th in the world seems good going, but not nearly as impressive as Singapore which holds 2nd place. Unfortunately competitiveness is where Hong Kong is most competitive. When it comes to “quality of living”, the city is down at #71 on the Mercer Quality of Living Survey, a list that purports to help multi-national companies decide where to open offices or plants, and how much to pay employees. Singapore is ranked #1 in Asia. 

Hong Kong performance overview. Source: The Global Competitiveness Report 2014-2015

Singapore performance overview. Source: The Global Competitiveness Report 2014-2015

And now it seems Shenzhen has overtaken Hong Kong as well. Has the economic rise reached a plateau? The China Development Institute, based in Shenzhen, has suggested that Shenzhen’s economy is freer than other mainland cities and government efficiency is higher than Hong Kong’s, where a policy of positive non-interventionism limits its role in the economy. The Shenzhen government, by comparison, can play a bigger part with innovative polices that attract investment.【2】

Worryingly for Hong Kong, Shenzhen seems to be filling the gaps pointed out by the WEF Report. Ni Pengfei, head of the Center for City and Competitiveness at CASS, said the ranking indicates that the innovation-driven development mode has made a major breakthrough in Shenzhen, just what Hong Kong is missing. Shenzhen has the highest economic output per unit area among mainland cities, and the city’s energy and water consumption per 10,000 yuan (US$1,611) of GDP is the lowest on the mainland.

Certainly it appears to be innovation that is driving Shenzhen’s remarkable rise rather than infrastructure, the go-to pillar that has served Hong Kong so well. But Shenzhen is fast catching up there as well, innovating with electric vehicles and app based transport solutions rather than just adding more roads, whilst Hong Kong seems unable to move away from the notion of building physical infrastructure to drive growth and competitiveness. Massive investment in contentious bridge and runway building continues unabated whilst funding of research, education and healthcare, key areas where Hong Kong could define its valuable place in its relationship with China, are neglected. 

Hong Kong desperately needs a radical shake up to break the inertia; last year’s Occupy protests served to illustrate that. But where is it going to come from? Political stalemate sends us heading to the 2017 threshold in much the same shape as we were 20 years previously and without a change in mindset regarding our place in China, nothing better may happen for the next 20 years. Whilst we sleep, the world around is changing at rapid pace, nowhere more so than right next door in Shenzhen, already being called the new Silicon Valley. By the time Hong Kong wakes up it may find it has not only lost its place at the table but missed the party completely. 

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