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Wealth gap in Hong Kong

Prof. Stephen Cheung

Dean, School of BusinessHong Kong Baptist University

• Background• Socio economics challenges• Hatred toward the Rich / Business • Government policy• Tri-partite relationship

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Content

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Socio-economic Challenges

• High income inequality sustained (Gini coefficient - 0.43 in 2009). UN reports: No. 1 unequal city in Asia (2008) & among developed economies worldwide (2009) (2nd: Singapore; 3rd: USA)

• Asset-bubble built up again (property prices restored to pre-97 level in some popular estates)

• Inflation: imported (RMB revaluation) + ‘peg’ to depreciating US Dollar

• Competition from first and the rapidly growing 2nd-tier cities in the Mainland

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UNDP Human Development Report 2009

HDI Rank Country 1992-2007

1 Norway 25.8

2 Australia 35.2

3 Iceland ..

4 Canada 32.6

5 Ireland 34.3

6 Netherlands

30.9

7 Sweden 25

8 France 32.7

9 Switzerland

33.7

10 Japan 24.9

11 Luxembourg

30.8

12 Finland 26.9

13 US 40.8

14 Austria 29.1

HDI Rank

Country 1992-2007

15 Spain 34.7

16 Denmark 24.7

17 Belgium 33

18 Italy 36

19 Liechtenstein ..

20 New Zealand 36.2

21 United Kingdom

36

22 Germany 28.3

23 Singapore 42.5

24 Hong Kong 43.4

25 Greece 34.3

26 Korea 31.6

27 Israel 39.2

Income Gap

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Income Gap

No. 1: Hong Kong, Top 11 Countries With the Biggest Gaps Between Rich and Poor (UNDP) Gini score: 43.4

Share of income or expenditure (%)Poorest 10%: 2.0Richest 10%: 34.9

Ratio of income or expenditure, share of top 10% to lowest 10% : about 18 times

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Income Gap

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Income Gap “Renowned for its high concentration of Rolls-

Royces, expensive real estate, and posh shops, the Chinese special administrative region has plenty of rich who enjoy showing off their wealth. However, Hong Kong also has one of the largest public housing sectors in the world, with about half the population living in government-supported or -subsidized housing estates. The city has no minimum wage - except for domestic helpers from the Philippines, Indonesia, and other countries. ”

Business Week, October 16, 2009

Number of Chinese newspaper articles with these key words

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Disparity between the rich and the poor 貧富懸殊 1546 1360 1127 2002 3041 3184 4565 3085 2902 6535

Housing prices 樓價 18091 20329 19764 23320 23979 21914 30409 36965 36581 51395

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Income Gap Developed economies: high percentage of service-

sector, finance & capital market and technology/high value-adding industries.

Wealth accumulation easier IF one has knowledge and/or capital

Recent asset-bubbles amplify the situation (property prices surging; restored to pre-1997 level in some areas)

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Income Gap

This also implies: without capital, assets or sophisticated knowledge, wealth creation is very unlikely

Unlike fast-growing period: easier promotion, pay-rise, job-change

Income gap and social inequality widened

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• Non-professional / low-skilled migrant communities: most obvious

• Inter-generation poverty: knowledge and capital gaps between children of the rich and the poor households are increasingly broadened

Income Gap

Number of Chinese newspaper articles with these key words

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Profiteers 奸商 828 834 1253 1305 943 698 1123 1535 1483 1788Hatred toward the business sector 仇商 1 1 0 10 34 6 7 18 11 772

Hatred toward the rich 仇富 9 91 517 512 578 759 738 666 961 2539

Inflated buildings 發水樓 1 0 0 1 2 5 32 56 312 1425

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‘Hatred toward the Rich / Business’?

Yes, rising public skepticism, grievances and even confrontation against a few tycoons, business groups and sectors, particularly developers

‘Hate Rich’ is NOT in HK’s culture and mindset; decades of pro-business and ‘get-rich’ ethics developed

Global Giants (e.g. Bill Gates and Warren Buffet) are respected not only for wealth and power, but more for their corporate social responsibilities and personal philanthropy

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‘Hatred toward the Rich / Business’?

Problems: • ‘oligopoly’ by some developers & ‘giant’ groups• Taking huge profits, appears to be an obstacle to

improve social justice, e.g. minimum wage, anti-trust, effective privacy protection, anti-discrimination etc.

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‘Hatred toward the Rich / Business’?

• Asymmetrical power over consumers and even government: manipulation of market price

• Changing HK values: highly developed, HK people (esp. new generations) pursue goals of social justice, fair-play, consumer-rights, market transparency etc. as in other advanced societies

Number of Chinese newspaper articles with these key wordsYear 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Social enterprises 社會企業 163 172 163 252 345 608 2363 2087 1933 2180

Wealth comes before virtue發財立品 59 66 56 88 97 113 169 110 98 223Corporate social responsibility企業社會責任 35 98 205 621 1118 2512 4426 6750 4918 5468

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Consequences: Social Tensions

• Income inequality + occasional economic setbacks social tensions and discontents

• Problems severed with recent inflation and asset-bubble. Simple livelihood needs for grass-roots, youngsters and even lower-middle class become tougher

• Recent asset bubbles and the forthcoming inflation

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Policy Implications

Immediate actions needed to resolve social tensions

• Re-assert the Government’s primary economic roles as ‘provider’, ‘facilitator’ and ‘regulator' to ensure a fair and open level-playing field exists

• Care for the underprivileged groups

Government policy

• Intergeneration poverty• Elderly• Unemployed • Working poor

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• Business has a role to play in building a harmonious society

• These are joint or shared responsibilities of the government & business in any developed societies

• Only responsible to the shareholders could be an excuse

• Tri-partite relation among NGOs, Govt, and business sector

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Corporate Social Responsibilities

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End

Thank You!