27 October, 2011

The politics of Hong Kong's property market (EJ Insight, 24 Oct 2011)

The economics of Hong Kong’s property market is well understood; its politics is not.

In economics, we look for supply-and-demand analysis. One digs up data on household incomes, demographic trends, the flow of capital, the wealth effect of the stock market, interest rate, and the medium to long-term supply of properties of various sizes, etc. etc.

In politics, it looks a little more haphazard. Hong Kong’s chief executive, after years of resistance to populist calls, took a U-turn last week in his farewell policy address by resurrecting the Home Ownership Scheme (HOS). Donald Tsang clearly sees his turnaround as a major final achievement, even leaving behind a political legacy.

Like a Hitchcock movie of suspense, the prolonged delay in reviving the scheme somewhat heightens the controversy and masks its actual insignificance. First, the committed target of 17,000 units of HOS in total is nothing but modest compared with his predecessor’s target to provide 85,000 residential units a year for Hong Kong. Second, to build 15,000 public rental housing units and make land available for 20,000 private sector units per year are just a reiteration of his past policies.

The real significance of all this is to illustrate once again the political dilemma of Tsang – or indeed any chief executive of Hong Kong – in solving the housing problem.

To begin with, the problem is ill-defined. Whose problem is it? To the super-rich, there is no problem. To the older middle-class generations who had a better chance of reaping the supersonic growth of the 1980s and cashing out in time, the problem may not be too big either. But to the up-and-coming generations, to the “sandwich class” of white-collar workers, and to anyone not yet on some kind of public housing subsidies, the problem is acute.

Begging the above question, in terms of finding a solution, the Hong Kong government is handicapped by harsh economic realities that deny it an effective mix of policy tools. First, the city’s fixed exchange rate, as noted by many commentators, strips its government of any flexibility in monetary policy and leaves its interest rate to the devices of the US Federal Reserve. Second, the huge influx of capital from the mainland goes almost unmonitored and unregulated. The official reason is that Hong Kong’s avowed “free port” policy does not allow it to impose any capital control. Only very recently did the city’s monetary authority requested local banks to tighten mortgage lending to foreign investors. But the influx has started taking its toll since 2006 and has been galloping to uncontrollable magnitudes in recent years, possibly as an aftermath of the mainland’s version of quantitative easing.

Thus, effectively, the city’s monetary policy is made in Beijing and Washington, in spite of its alleged independence. The local populace may one day start to wonder why their hard-earned incomes are apportioned by mainland technocrats or American politicians from Alabama to Wyoming. But for the moment, even if the chief executive is not popularly elected, he cannot ignore two glaring facts that practically tie his hands.

For one, the structure of Hong Kong’s economy is, after years of soul-searching to and fro, not very far from its status in 1997. In the second quarter of 2011, property related lending (including property development and purchase of private residential properties) accounted for two-thirds of all domestic lending. Manufacturing? A shameful 7 percent. So much about its government’s decade-long rhetoric about diversifying its economy.

It doesn’t take a PhD in finance to understand what a slump – nay, even only a correction – in property prices would mean for the banking sector, in terms of bad debts and reduced demand for new business loans. At present, the outstanding value of mortgage loans stands at some HK$800 billion, or about 1.6 times the government’s fiscal reserves last year.

Turning this figure around, one also sees how heavily Hong Kong’s population is invested in the property market. Possibly because there’s nothing else to invest in, given the monolithic nature of its economy. So this is another reality: a property price correction would affect the well-being of the majority of Hong Kong’s middle class. Many of them were behind the popular movement to topple the previous chief executive. Many of them complain about Hong Kong’s landed ruling class. Yet not many of them understand that, by investing in the property market, they have somehow had their fate or interests united with those of the property tycoons. Putting it more figuratively, the latter have them hijacked.

Frankly speaking, the Hong Kong government at its present structure will have neither the political will nor the economic means to offer any brand new solution to the housing problem. Its housing policy is likely to be one of either modest incrementalism or, worse still, a “no-policy” policy based on undefined moving goals.

Both of the two (alleged) chief executive candidates have expressed support for the incumbent’s “new” housing policy. Both have suggested some figures or targets. But neither of them is likely to be able to shake off the existing political shackle on this problem.

16 October, 2011

Tsang's last Policy Address

Two interviews on the last Policy Address of Donald Tsang; one before its delivery and another thereafter...I remain of the view that, in spite of his seeing the problems, he fails to offer a solution - a solution that demands social consensus on a new governing ideology. And that's not his personal failure but a systemic failure.

議事論事 (13 Oct), RTHK Television

Chancedia (19 Sep)

14 October, 2011

Why there's a point in the Occupy Wall Street Movement

It's true that we have to work out our own problems and not blame others all the time. It's also true that some of the younger generation expect too much too soon. But the Occupy Wall Street Movement does have a point; it reveals some fundamental ailments with the mainstream Wall Street values (or the so-called 中環價值 in Hongkong). For if Wall Street elites believe capitalism means "winners take all", it is self-contradictory for them to ask government to bail out failing banks. If capitalism does reward people who work harder and smarter, it is hypocritical to ask for taxpayers' money to clean up their debts and save them from their own ill-judged investment. If social security discourage people from working, huge bonuses to troubled banks - still on public subsidy - only encourage more reckless behavior in financial engineering. And it is purely unjust for them to demand cuts on social benefits to save whatever credit rating threatened by a liquidity crunch of their own making. The 2008 crisis shows that those financial elites are more skillful in protecting their vested interests by living off others than by their self-proclaimed smartness and diligence. And such protection comes at the price of inflation and higher taxes for all in the long run. They are salvaged from bankruptcy in their coffers, but they're bankrupt indeed in their trust and moral leadership to lead the nation.

09 October, 2011




















《十四年亂象回顧系列》 • 之十四


02 October, 2011


—— 萊茵霍特﹒尼布爾(美國神學家)














《十四年亂象回顧系列》 • 之十三