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Thread: Hong Kong, 1997-2017

  1. #1
    Senior Contributor DOR's Avatar
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    Hong Kong, 1997-2017

    20 years on, and I remember it as if it were … 30 years ago (I spent the evening in the FCC, and if any of you know the legendary Foreign Correspondents’ Club, you’ll understand my foggy memory).

    As always at this time of year, it was hot as hell and on that particular night, pouring rain. We'd spent the previous 15 years asking (and attempting to answer) the question "What will happen after the Handover?," and most of us were very happy not to have to hear that again.

    But, 24 hours later it was all over ... the Asian Financial Crisis started with the collapse of the Thai baht on July 2, 1997, and very few people cared much about Hong Kong for a while.


    China 'humiliating' the UK by scrapping Hong Kong handover deal, say activists
    Pro-democracy leaders say Britain has ‘legal, moral and political responsibility’ to stand up to Beijing
    “On Friday, the eve of the 20th anniversary of Hong Kong’s handover, on 1 July 1997, Beijing controversially announced that the Sino-British joint declaration was ‘now history’ and no longer had ‘any practical significance nor any binding force.’”
    https://www.theguardian.com/world/20...-handover-deal

    Military parade in Hong Kong after 20 years of Chinese rule, in pictures

    http://www.telegraph.co.uk/news/2017...mocracy-party/
    When is a military parade not a military parade? When it is confined to Shek Kong barracks.

    Pro-independence party’s Handover eve vigil relocated to Baptist University due to heavy police presence
    https://www.hongkongfp.com/2017/07/0...lice-presence/
    Bizarre turns …
    The Hong Kong National Party and the presidents of several university student unions – who were guest speakers – eventually relocated to Baptist University, where they protested against what they called an abuse of power by the police.
    Shue Yan University president Lau Chak-fung said the police gave “strange” explanations as to why they wanted to check his bag or view the contents of his mobile phone as he approached Tsim Sha Tsui.
    “For example, when I refused to let them see the contents of my phone, they said they would arrest me for stealing the phone,” he said. “They said the phone wasn’t mine. Then they said they suspected there was child pornography in my phone.”

    20 Years After Handover, Hong Kong Residents Reflect On Life Under Chinese Rule
    http://krvs.org/post/20-years-after-...r-chinese-rule

    Hong Kong wealth gap at its widest in decades as handover anniversary nears
    http://www.reuters.com/article/us-ho...-idUSKBN19I1E2
    Somewhat misleading, as “wealth” usually means something like net worth, but that has never been measured in HK. What’s being measured is income, excluding benefits such as housing and no taxation that can easily double the numbers for the poorer half of the population.

    Not to mention comparing apples to oranges:
    “Hong Kong had 4,080 ultra high-net worth individuals in 2016, the report said, but mainland China has more than three times that number and many of them have bought property in the territory.”
    —That’s net worth.

    The wealthiest 10 percent of households earn nearly 44 times more than the poorest 10 percent who make an average of HK$2,560 ($328.20) per month, according to a 2016 household income report published by the Census and Statistics Dept this month.
    —That’s gross income.
    Last edited by DOR; 01 Jul 17, at 11:14.

  2. #2
    Senior Contributor DOR's Avatar
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    One Country, One System

    STOCKHOLM – July 1 marks the 20th anniversary of the United Kingdom’s handover of Hong Kong to China, under a model called “one country, two systems.” But an unavoidable question will hang over the official commemorations: Is there really anything to celebrate?

    If you had asked Deng Xiaoping, the architect of the “one country, two systems” model, what the handover’s 20th anniversary would look like, he might have said that Hong Kong’s residents would be toasting to their prosperity and liberty. China’s leaders, for their part, would be showcasing their credibility and governing capacity, finally quieting the chorus of naysayers who had doubted the Chinese Communist Party (CCP) and the sincerity of its promises to Hong Kong.

    But the reality is very different. Today, scenes that would have been unthinkable in Hong Kong in 1997 – mass anti-China demonstrations, the election of anti-CCP radicals to the city’s legislature, open calls for independence – have become routine.

    To be sure, powerful economic forces – including China’s rise, globalization, high inequality, and soaring property prices – have buffeted Hong Kong since 1997, undermining the city’s competitiveness and contributing to social discontent. But, while adverse socioeconomic factors have exacerbated popular frustration, the mass protests that have become a fact of life in the city are quintessentially political protests centered on the rights of Hong Kong’s people.

    Against this background, few would call “one country, two systems” a success. In fact, the model was probably doomed from the start, owing to several fatal flaws that are embedded in its structure.

    For starters, the language committing China to respect the democratic rights of the people of Hong Kong was deliberately vague. Even the joint declaration signed by the British and Chinese governments in 1984, which set the stage for the 1997 handover, offered the somewhat imprecise promise that the chief executive would be appointed by China “on the basis of the results of elections or consultations to be held locally.”

    Moreover, the only party with the power to enforce the terms of the joint declaration, not to mention Hong Kong’s mini-constitution known as the Basic Law, is the central government in Beijing. As a result, China’s leaders could fail to honor the spirit or even the explicit terms of their commitments with impunity. The current radicalization of Hong Kong citizens, particularly its young people, reflects a desire to change that, and make China pay a price for reneging on its promise of “self-rule” and responding to dissent with repression.

    There is one more feature of the “one-country, two systems” scheme that has doomed it: China’s deliberate decision to rule Hong Kong through crony capitalists. As ironic as it may sound, China’s so-called communists apparently trust Hong Kong’s tycoons more than its masses (perhaps because buying off tycoons costs a lot less).

    But, because their loyalty lies with their backers in Beijing, not the people of the city they administer, Hong Kong’s crony capitalists are bad politicians. Under the CCP, they have gained power and privileges that were unattainable under British rule. But that has made them unresponsive to their constituency as it becomes increasingly alienated from their patrons. As a result, China’s proxies have failed spectacularly at securing popular legitimacy.

    Consider the fate of Hong Kong’s chief executives, hand-picked by China’s rulers to run the city. The first, Tung Chee-hwa, faced a half-million protesters in 2003; in 2005, halfway through his second term, his ever-growing unpopularity drove him to resign. Tung’s successor, Donald Tsang, completed his two terms, but just barely, and he was jailed for corruption (along with his number two) after leaving office. Leung Chun-ying, who came next, was such a disaster that China’s rulers had to cashier him after just one term.

    Of course, the “one country, two systems” approach has not been an unmitigated disaster. Given the vast cultural, economic, and institutional gaps between Hong Kong and the mainland, things could have been much worse. But that does not make it a sustainable model. In fact, it may well already be dead.

    In the back of their minds, China’s leaders have always sought to move toward a “one country, one system” model for Hong Kong. Deng thought that such a transition would take 50 years, but it took his successors only 20, and they didn’t even fully realize it was happening. Whatever policies Chinese authorities pursue in Hong Kong between now and 2047, the goal will be to make the present – particularly the absence of political rights – look more and more like the future.
    Minxin Pei: Professor of Government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States. He is the author of China's Crony Capitalism.


    COMMENT:

    I don’t really understand how “China’s rise, globalization, high inequality, and soaring property prices” can be considered a negative, since the first is Hong Kong’s raison d’être, the second is it’s greatest advantage, the third is proof that the capitalist system hasn’t been replaced by socialism and the fourth reflects strong market demand.

    Undermining competitiveness? Not a chance.
    Causing discontent? Only the cost of living, but that’s nothing new.

    “few would call ‘one country, two systems’ a success.”

    Really? Considering the number of examples of such a system in practice that there were when the idea was implemented (zero), and the odds that the commie dogs wouldn’t live up to their side of the bargain (very high), I’d say is has been a whole lot better than anyone expected. Not perfect by any stretch of the imagination, but quite good.

    Hong Kong capitalists “have gained power and privileges that were unattainable under British rule.” ?

    Really?
    In the old days, it was understood that the colony was run by the Jockey Club, the Hong Kong Club (or, was it the Bank?) and the Governor, in that order. The first two are business, and not just British business.

    Vague language promising democracy? Check.
    Vague implementation of democracy? Check.

  3. #3
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    DOR,

    But, 24 hours later it was all over ... the Asian Financial Crisis started with the collapse of the Thai baht on July 2, 1997, and very few people cared much about Hong Kong for a while.
    isn't it funny to look back and think about that period? people were thinking that maybe HK would be able to civilize the Chinese, or something to that effect. past the Asian Financial Crisis, though, world was about as peaceful as it was ever going to be. hell, even Kosovo hadn't started up yet.

    just the year before, POTUS was talking about -school uniforms-!

    there's considerably more evidence that the decade of the 1990s could be better classified as "la belle epoch" than the decade of the 1900s.
    There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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    In trade-dominated economies such as Hong Kong and Singapore, wealth estimates such as GDP per capita can be highly misleading. Better is to look at private consumption expenditure (PCE) per person.

    As the table below shows, Singapore’s GDP per person is 13% larger than that of Hong Kong, but in terms of actual personal consumption, Hong Kong people have nearly 49% more money.

    While one might argue that misaligned exchange rates are to blame, both cities are near-free trade areas, putting prices at or close to equal. The one difference is real estate, where Hong Kong is considerably more expensive than Singapore. But, considering that half of each city’s population reside in heavily subsidized accommodation, the differences are not significant.

    2016, at market _ _ _ _ Singapore _ _ _ _Hong Kong
    exchange rates _ _ _S$1.38:US$1 _ _ _ HK$7.76:US$1

    GDP per Capita _ _ _ _ US$51,430 _ _ _ _ US$44,752
    PCE per Capita _ _ _ _ US$19,362 _ _ _ _ US$28,798


    Interestingly, Hong Kong's real GDP grew almost exactly half as fast in 1998-2017 as it did in the previous 20 years (3.4% p.a. vs. 7% p.a.). And, given the deep deflation suffered in the first several years -- the PCE deflator rose barely 1% p.a. over the past 20 years, CPI +2.3% p.a. -- there seems to be a gap between the two cities.
    Last edited by DOR; 04 Jul 17, at 14:37.

  5. #5
    Senior Contributor DOR's Avatar
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    Quote Originally Posted by astralis View Post
    DOR,



    isn't it funny to look back and think about that period? people were thinking that maybe HK would be able to civilize the Chinese, or something to that effect. past the Asian Financial Crisis, though, world was about as peaceful as it was ever going to be. hell, even Kosovo hadn't started up yet.

    just the year before, POTUS was talking about -school uniforms-!

    there's considerably more evidence that the decade of the 1990s could be better classified as "la belle epoch" than the decade of the 1900s.

    20 years ago, I was struggling to get my head around currency boards and the implications of deep financial ruin among the Asian Tigers. (I was also camping in Mongolia, but that’s another story.)

    After a year or so, I convinced my boss to let me attend a two-week course at Harvard on International Financial Crises and Reform. While the theoretical background and geographic diversity really helped me better understand what had happened previously, the most astonishing thing was how old the data was that the professors cited.

    I was looking at May 1998 figures (this was in July), and my professor said, “We only have data up to the end of last year (i.e. December 1997).”
    In his world, if it wasn’t published by the World Bank, on paper, in a monthly statistical book, it wasn’t valid.

    Even though the WB got it’s data from the same source (national statistical offices) as my May data.

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    Carrie Lam’s first Policy Address

    To further enhance our economic development and long-term competitiveness, we will adopt appropriate tax measures to support targeted industries and steer economic activities. (p.4)

    Introduce tax concessions where appropriate to promote economic development and enhance Hong Kong’s competitiveness in the long run. (p. 8)
    —2017 Policy Agenda

    Hong Kong is in the process of fundamentally changing its fiscal philosophy, and the late Sir John Cowperthwaite (FS, 1961-71) must be turning over in his grave.

    Financial Secretary Paul Chan in his 2017-18 Budget Speech announced the formation of a tax policy unit. The TPU would monitor and presumably address issues related to international standards, competitiveness and sustainability.

    During her election campaign, Carrie Lam, the new CE, supported a two-tiered business tax structure. The government Policy Agenda (a more detailed companion to the Policy Address) released in October 2017, puts tax concessions on the fiscal agenda for the first time.

    Her just-released proposal goes beyond the request by the Hong Kong General Chamber of Commerce* and others for a 10% rate on the first HK$2 million of taxable income. Instead, Ms Lam proposes an 8.25% rate.

    The smallest businesses will benefit the most. A company paying taxes on $2 million or less will save half; one with a $3 million profit will save one-third. All else being equal (it never is), a company reporting $10 million in profits will save 9.1%. By $19 million the savings drops to 5% and to just 2% at $48 million.

    However, the proposal is complicated by not being available to all companies within a corporate group. Only one company may be nominated for the lower tax rate. So much for the long-standing excuse that such action could not be taken because it would compromise Hong Kong’s cherished “low and simple tax system.”

    Like many other officials, Ms Lam notes that Article 107 of the Basic Law requires limiting spending and avoiding fiscal deficits. The text says,

    “The Hong Kong Special Administrative Region shall follow the principle of keeping the expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product.”

    https://www.policyaddress.gov.hk/201...pdf/PA2017.pdf
    https://www.policyaddress.gov.hk/201...pdf/Agenda.pdf

    * Full disclosure: I was the HKGCC’s Chief Economist, 2002-15.
    Last edited by DOR; 12 Oct 17, at 11:20.
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    Quote Originally Posted by DOR View Post
    20 Years After Handover, Hong Kong Residents Reflect On Life Under Chinese Rule
    http://krvs.org/post/20-years-after-...r-chinese-rule

    But not everyone here thinks the Chinese are so bad. A retired woman who would only tell me her last name, Wong, so she could talk freely about politics, relaxes in the only place where there's room for a park — the median of a road.

    "The government is good," she says. "Thanks to them, I have my welfare checks. The people who criticize China aren't seeing the good things they do. Life in China has gotten so much better and happier."

    Wong says she loves China. I ask her if she has ever considered moving there.

    "No," she says. "There's no freedom of speech there."

    _________________

    No comment needed.
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    The 2018/19 Hong Kong Government Budget

    I gave Paul Chan a pass on his last budget as he had only been in office for a very short time. Not this year. Hong Kong’s Financial Secretary just announced that the thin fiction that expenditure should rise only as fast as nominal GDP is no more. From here on out, the sky’s the limit.

    The idea of adopting “forward-looking and strategic financial management principles” to optimize the use of the fiscal surplus fails to address the elephant in the room. The problem isn’t that there aren’t enough things to spend money on. Nor is it poor management principles (the surplus itself set fire to that straw man).
    This is a structural problem, albeit one most governments would kill for. Until and unless society agrees on spending priorities, taking money out of the economy without any real idea of what to do with that money is irresponsible. More, it’s immoral.

    Smoke and mirrors
    In 2013-14, the economy grew by HK$101.3 billion (US$13 bn). That year, the fiscal reserves increased by $64.8 billion, or 64% of the economic expansion. I understand that the two, reserves and GDP, aren’t exactly the same. But too few people seem to realize the scale of the growth in the reserves. Comparing them to GDP seems to be a useful proxy.

    In the subsequent three years, the rate of confiscation averaged just under 29%, but last year it exploded to 222.4%. That’s right: the amount added to the reserves ($249.1 billion) exceeded the growth in the economy ($112.0 billion). The good news is that the official estimate has the extraction falling to just under 76% this year.

    Hong Kong’s fiscal reserves are not “healthy” anymore than a 100kg, 7 year-old child is healthy. They also are not useful for maintaining the fixed exchange rate system; that’s why there’s a massive Exchange Fund ($4,192.5 billion at the end of January 2018).

    Raising the issue of the exchange rate is an attempt to confuse and deceive, not to enlighten. The Exchange Fund is 12.8% larger than the net deposit of the entire banking system. It’s 56.8% larger than the money supply (M-1). Shortly after the Handover, the IMF pointed out that without a broad tax base, Hong Kong would have to maintain a sufficient fiscal reserve – or borrow – to get through the business cycle. Part of the reason for that is the fixed exchange rate regime, which was too rigidly maintained during the Asian Financial Crisis. Shame on you, Mr Chan, for trying to deceive the people of Hong Kong.


    Pro-cyclical
    It might be nice if the FS were to expand spending and contract revenue extraction during economic difficulties, but that hasn’t been the case. Instead, past budgets needlessly sucked vital monetary fluidity out of the economy during the worst of the North Atlantic Financial Crisis.

    So, the obvious thing to do is to stop taking money out of the economy until one can actually come up with a plan to put that money to use. Mr Chan’s solution, however, is to continue issuing bonds. The come in either Silver or Green, and will be quite effective at taking money out of the economy, money the government doesn’t need.

    Here’s a better idea, sir. Instead of asking the elderly to buy Silver bonds, why not actually put the money to use? Set aside HK$200 billion, which is less than half of the excess sucked out of the economy over the past five years (and, less than half of the projected surplus to 2022/23). Use the money to look after the elderly, the infirm and the poor.

    But, no. On an operating basis, Mr Chan proposes taking an unnecessary $132.2 billion out of the economy over the next five years, money for which he cannot articulate a purpose.

    Hong Kong deserves better.
    Last edited by DOR; 28 Feb 18, at 11:56.
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    Senior Contributor DOR's Avatar
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    What's up with the HK $ ?

    I’ve been getting heads-up about the HK$ exchange rate over the past two days, and can’t for the life of me figure out what’s going one.

    To recap, the currency is totally independent of China; it was pegged to the US dollar at 7.8 per dollar in October 1983; and it hasn’t moved more than a few cents since then.

    The attached graph of daily rates shows what happened to the exchange rate in four previous crises, and today. The crises are
    • Tiananmen (1989); • the Handover and Asian Financial Crisis (1997);
    • SARS (2003) and; • the Occupy Movement (2014).

    In each case, and for the purple line representing the current situation, the line starts in March: 1989, 1997, 2003, 2014 and 2017 (last year).

    Name:  HK$ crises.jpg
Views: 175
Size:  84.3 KB
    If those four crises didn’t result in anything more than a temporary minor adjustment, then I can’t see any reason why today – when there doesn’t appear to be anything important happening – should be the break point. The only logic would be if the HKSAR Government decided to break the peg now when no one expects it, but, the story leaked and the market is preparing for it.

    I don't believe it.

    First, there is no reason to break the peg. Inflation / deflation isn’t a problem; the budget is in massive surplus; the Exchange Fund is enormous; unemployment is low; and the economy is growing well.

    Second, the timing is all wrong. There is no way they would do this just after Xi Jinping becomes President For Life (it would be a sign of no-confidence) and during the National People's Congress. For one thing, most of key HK players are out of town!

    Third, the decline has been going on since mid-June 2017, and there is nothing back then to give us any hint as to why this might be happening.

    Finally, after nine months of being weaker than HK$7.80:US$1 – which is a long time – nothing more has happened. The CE changed, and it didn't get any better or any worse.
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    Browsing the financial news, something to do with the upcoming US interest rate hike.

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    An important point that completely skipped my mind about HK ? they still issue their own currency

    You'd have thought it would have been phased out almost 20 years later.

    For all the shenanigans about political control, the money part is still in HK's hands

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    The Basic Law
    Chapter V, Article 111

    The Hong Kong dollar, as the legal tender in the Hong Kong Special Administrative Region, shall continue to circulate.

    The authority to issue Hong Kong currency shall be vested in the Government of the Hong Kong Special Administrative Region. The issue of Hong Kong currency must be backed by a 100 per cent reserve fund. The system regarding the issue of Hong Kong currency and the reserve fund system shall be prescribed by law.

    The Government of the Hong Kong Special Administrative Region may authorize designated banks to issue or continue to issue Hong Kong currency under statutory authority, after satisfying itself that any issue of currency will be soundly based and that the arrangements for such issue are consistent with the object of maintaining the stability of the currency.
    http://www.basiclaw.gov.hk/en/basicl...chapter_5.html
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    Quote Originally Posted by DOR View Post
    The Basic Law
    Chapter V, Article 111

    The Hong Kong dollar, as the legal tender in the Hong Kong Special Administrative Region, shall continue to circulate.

    The authority to issue Hong Kong currency shall be vested in the Government of the Hong Kong Special Administrative Region. The issue of Hong Kong currency must be backed by a 100 per cent reserve fund. The system regarding the issue of Hong Kong currency and the reserve fund system shall be prescribed by law.

    The Government of the Hong Kong Special Administrative Region may authorize designated banks to issue or continue to issue Hong Kong currency under statutory authority, after satisfying itself that any issue of currency will be soundly based and that the arrangements for such issue are consistent with the object of maintaining the stability of the currency.
    http://www.basiclaw.gov.hk/en/basicl...chapter_5.html
    Right but how long for ?

  14. #14
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    Until midnight on July 1, 2047 at a minimum.
    There's no use-by date in the Basic Law; it just says what can't happen before then.
    No socialism.
    No high taxes.
    No replacing the HK$ with the Rmb.
    And, so forth.
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    Turbanator Senior Contributor Double Edge's Avatar
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    Quote Originally Posted by DOR View Post
    Until midnight on July 1, 2047 at a minimum.
    There's no use-by date in the Basic Law; it just says what can't happen before then.
    No socialism.
    No high taxes.
    No replacing the HK$ with the Rmb.
    And, so forth.
    And all these points are hugely important. HK still retains monetary authority. All forgotten when you see students staging an occupy protest and the narrative is Beijing is taking over and henceforth HK will be subservient like any other town on the mainland. By when? heh

    Would it be fair to say HK still retains 80% of the freedoms it had at handover ? figure is arbitrary just trying to get a feel

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