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MID-YEAR MALAISE: NO PROGRESS ON LEADING ISSUES

By Robert Keatley, Editor
July 2011

None of Hong Kong’s more urgent political or social problems moved closer to resolution during the year’s first half, leaving the territory a contradictory mix of growing prosperity and increasing unhappiness. Even though the economy grew at an unexpected 7.2% annual rate in the first quarter and unemployment dropped to a three-year low, there was also a continued rise in public discontent. This caused Chief Executive Donald Tsang’s popularity ratings to plunge while the administration’s other senior officials likewise were criticized often for perceived shortcomings. Many complaints stemmed from the government’s failure once again to introduce basic housing, welfare or education reforms for the new fiscal year—financially feasible thanks to a large budget surplus—while instead handing cash back to all residents, in most cases regardless of need.
Likewise, there was no substantive change on the political front. Hong Kong will hold elections in 2012 for chief executive and all Legislative Council (Legco) seats under terms that will slightly expand the democratic quotient. But the rules for future elections—which Beijing has said could be conducted by a long promised but never delivered universal suffrage system—remained undetermined. In fact, the main government moves seemed to be sometimes unsuccessful efforts to nibble at the edges of existing political freedoms as payback for past events it didn’t like. Neither was clarity added to the question of just who will compete for the top government post in next year’s vote by a special campaign committee that will pick the winner.
All this must strike government leaders (and many others) as a bit disconcerting. On the surface, the Hong Kong economy, particularly the key financial sector, is booming and Hong Kong continues to benefit from a high quality of governance. The rule of law, freedom from corruption and extensive civic freedoms remain intact. Mainland Chinese and overseas companies continue to use Hong Kong as a place to launch new share issues, while banking benefits from Beijing’s decision to edge its currency—the renminbi, or yuan—into international markets. Tourism, especially from across the border, thrives, helping explain why retail sales soared 26% over the past year. Trade continues to grow. Booming real estate prices have helped the nearly-half of Hong Kong residents who already own their homes, although high prices have shut others out of the market. An international banking survey said the number of local millionaires rose 33% during the past year, the world’s fastest increase.
Trouble for the Poor and the Young
But appearances can also be deceiving. The median household income hasn’t risen over the past decade; though the prosperous have become much more so, the poor only have grown more numerous. Most seriously affected are the elderly, who have limited social benefits available, and the youth, who complain about a lack of good jobs and upward mobility even for those with extra years of education. One problem is that finance, which funds so much of Hong Kong’s glitter and generates great wealth, also provides relatively few jobs compared to industry and other services—perhaps 6% of the total—despite its huge contribution to the total economic product. The territory’s first minimum wage law, which has brought welcome pay raises for many at the bottom, has also seen efforts by some employers to avoid its full implementation. Overall, therefore, the new wealth is being divided even less equally than in recent times, widening the income gap and exacerbating social discontent. [See the article by Anthony B.L. Cheung in this issue.]
Yet none of these issues are beyond solution despite the enormous difficulties involved. The government already spends vast sums on public health, education and welfare, and even under its existing low-tax policies has additional funds available. What remains lacking, in the view of many critics, is a clear sense of strategy and priority, as opposed to continual tinkering with existing programs that seem less and less adequate as time passes. For example, the basic education system isn’t producing enough graduates who qualify for jobs in Hong Kong’s ever more technical and sophisticated economy despite increases in school spending; better language training in Mandarin Chinese and English would help open more employment doors in business, for instance. Likewise, the existing public health system absorbs more and more billions without providing systematic care in crucial areas like preventive medicine.
Instead, the administration’s most costly new move in 2011 has been to schedule tax refunds of HK$6,000 (US$775) for each permanent resident, even those currently living abroad or newly arrived from mainland China. While this may bring immediate relief for lower-income residents, critics complain it absorbs government funds without doing anything about long term issues. In fact, it may do the opposite by giving a quick boost to the inflation that affects poor people most directly—the rate has reached 5.2% and continues to climb. Many residents complain this cash-back decision reflects a lack of strategic thinking and decisive action that has come to mark government policy. They assert that Chief Executive Tsang and his senior colleagues are mainly marking time until new leaders take over next year—coasting to the finish line—though Mr. Tsang denies strongly that his is a “sunset government”.
The French Cash In
In fact, he is contemplating direct intervention in the real estate market, where soaring prices have pushed young people and middle-income families out of contention for new homes. A combination of a controlled property market that favors a small group of leading developers, increased demand from wealthy mainland buyers (much of it speculative) and other factors have given Hong Kong some of the world’s highest home prices—up 14% so far this year after a 24% rise in 2010. Even a small flat in a modest area can cost several millions, while the French government recently cashed in by selling its posh consular residence on the Peak for some US$65 million. The government already has tried to curb speculation by making large mortgages more difficult to obtain, especially for non-locals; mainland buyers have scooped up some 40% of all new flats sold this year.  Mr. Tsang has said he also may resume a subsidized housing program abandoned in 2003 after developers complained it hurt their profits; presumably, any new plan will resemble the former one that provided subsidies of up to 40% for qualified buyers. However, some analysts believe it would be more useful to reclassify old factory and warehouse areas for residential use, and rush more building sites onto the market.
Clearly something needs to be done. Housing prices have become a major source of public discontent and government criticism, with much invective also aimed at an alleged hegemony of property developers who dominate the field. Even Beijing has taken note. During his June visit, the central government’s Wang Guangya, a former vice minister of foreign affairs who now heads the regime’s office for Hong Kong and Macao affairs, warned that “more efforts should be spent on housing issues of the general public, particularly [for] the underprivileged. Housing is both a social and economic issue and, if it’s not handled well, it becomes a political issue.” This is a sensitive issue for Beijing, especially because mainland speculators share blame for the housing bubble. Chief Executive Tsang apparently got the message.
As this indicates, the Hong Kong public’s relationship with China remains complex and contradictory. While many people take great pride in the mainland’s enormous economic accomplishments and see their livelihoods increasingly dependent upon them, aggravations continue to surface—and not just due to home prices. For example, residents welcome the flood of Chinese visitors who have given such a boost to retailing and tourism, even as they blame them for feeding inflation. They also complain about mainland mothers shutting locals out of maternity wards, for 40,000 of last year’s 88,000 births in Hong Kong were to Chinese visitors. This has caused a reluctant government to ration places for pregnant women from China. Likewise, residents also blame visitors—who for good reason don’t trust food products back home—for clearing local supermarket shelves of items like baby formula and milk powder. And there are frequent complaints that mainlanders are taking good jobs or university places away from locals (even if Hong Kong applicants can’t qualify for them).
In addition, a pending government “national education” plan served as a reminder that many Hong Kong residents don’t want their lives ruled by the Chinese Communist Party, as even some pro-Beijing politicians will concede. The proposal would require students, starting in 2012, to spend up to 50 hours per academic year on “moral and national education,” including how to sing the national anthem and respect the flag. There would be no exams but students would have to critique their classmates’ performances, a tactic reminiscent of the Cultural Revolution. The program presumably was instigated by Beijing; Wang Guangya, the visiting official, said it would help students “understand why China chose to follow the way of socialism since 1949.”
No Brain-washing Wanted
But many educators objected vociferously. For example, the Grants School Council, representing 22 highly-regarded schools, urged the government to drop the idea of making this a mandatory course; one principal said it was “imbalanced”. So did pan-democratic political leaders, who called it “brain-washing” designed to enhance regard for the Chinese Communist Party. The government under secretary for education said all views would be considered but declined to say if the plan could be abandoned if public reaction was strong enough.
Some other dubious political ventures also brought the Tsang administration new criticism; one was an attempt to abolish legislative by-elections whenever sitting members resign or die. The move almost certainly was prompted by the resignation last year of five pan-democratic Legco members who hoped to turn their re-election campaigns into a popular referendum on government political reform proposals they opposed. They won back their seats but the vote aroused little public enthusiasm and their tactic wasn’t considered a success. However, it did anger both the Hong Kong and Chinese governments; Beijing called it illegal.
The government’s original proposal banning by-elections said a departing legislator would be replaced by whoever was the runner-up in the previous balloting, most likely replacing a government critic with a government supporter if pan-democrats repeated the referendum tactic. That earned widespread opposition and even Beijing’s local representatives said the Hong Kong government should re-think the plan “to avoid political tension.” Revised legislation, still pending, now calls for any departing member’s term to be completed by a candidate from the same party, if available. This too brought much opposition but the administration seems determined to do away with by-elections all the same.
For all that, Hong Kong’s civic freedoms remained substantially different from those on the mainland. Once again, the June 4, 1989 killing of demonstrators in or near Tiananmen Square in Beijing was remembered with another large gathering in Victoria Park. Organizers claimed a turnout of 150,000, though police put the total at 77,000. The meeting passed without incident, a sharp contrast to mainland China where no public notice of the 1989 event is allowed and even using the word “Tiananmen” on the Internet can bring police to the door. Similarly, some books with political content—banned in China but published in Hong Kong—are leading candidates for local literary prizes.
As the July 1 date for an annual march by government critics drew near—commemorating the 2003 demonstration by 500,000 people who opposed then-pending security legislation and other matters—the administration introduced a new tactic to hinder the turnout. Police told the organizing committee, the Civil Human Rights Front, that members faced arrest if marchers were too noisy, played musical instruments in the street or solicited funds on behalf of the movement. The committee appealed the restrictions to one government body and won, only to be told by another agency that any amplifiers at the demonstration site must by covered to reduce the noise level, a previously unknown restriction. However, organizers of a pro-government counter-demonstration at a different location were told that no such stipulations applied to them.
The march came off on schedule with organizers claiming 218,000 people turned up, the largest turnout for seven years, though police, said as usual that the crowd was much smaller: 54,000. Despite a rather festive mood overall, complete with whistles, drums and banged metal cups, the marchers also expressed great dismay over home prices, inflation and the effort to scrap by-elections, among other things. Some signs paired Chief Executive Tsang with tycoon Li Ka-shing, whose holdings include a leading property developer, as their foes. As one demonstrator complained, “I think most people cannot feel the government actually cares.” How seriously the administration will take this mass statement of public unhappiness remains to be seen. Perhaps not very; a loyalist demonstration marking the 14th anniversary of the handover to Chinese sovereignty drew 27,000 to an event held not far away.

Robert Keatley is editor of the Hong Kong Journal

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