REPORT FROM HONG KONG AN INDUSTRIAL REVOLUTION PACKED INTO FIFTEEN YEARS

Press, Volume CIII, Issue 30498, 21 July 1964, Page 12

REPORT FROM HONG KONG AN INDUSTRIAL REVOLUTION PACKED INTO FIFTEEN YEARS

[By M. H. FISHER] (■Reprinted from the “Financial Timet" by arrangement

New office buildings, tower-blocks of flats and factories are going up wherever one looks in Hong Kong. The proportion, of new buildings to old must be higher than anywhere else in the world. An industrial revolution has been packed into a span of 15 years. And yet the visitor to the Colony cannot help feeling that in a sense he is back in the 19th century.

Economically the entrepreneur reigns supreme. This is nineteenth-century capitalism at work with an irreducible minimum of Government interference. Politically, Hong Kong is governed under an old-style colonial regime. Certainly no-one has ever raised the cry, “No taxation without representation”—perhaps because there is so little taxation. Most striking, perhaps, to the economically interested is the virtual absence of the statistical indicators which one is so accustomed to watch in other countries.

Few Statistics Income a head is reckoned to be somewhat between £lOO and £125 per annum, but this is at best a guess. Of the gross national product (whatever that may be) it is thought that about 50 per cent is accounted for by exports. The economy probably grew bj’ 10 to 15 per cent in each of the last four years if the revenue and export figures are a reasonably accurate guide. Most remarkable of all in this day and age, Hong Kong does not produce any balance-of-payments figures. There is simply no check on capital movements. On one point, though, there can be no doubt. Money may be expensive, but there is lots of it about. Hong Kong is one developing country which does not suffer from a shortage of capital. For industrial projects the borrowing rate is 6j to 7 per cent; building finance costs more—from 9 to 10 per cent. Smaller banks, backing riskier ventures, charge substantially more than that. But the returns are great Most Hong Kong businessmen would expect to see their outlay on an investment recouped in five or six years. In these circumstances, it is hardly surprising that noone thinks or talks very much about 1997, the year in which Britain’s lease of the mainland New Territories expires Questions on whether the prospect of a Chinese takeover at that time is affecting any plans are met with a stock answer: “Thirty-three years is a long time. Who, after all, would have thought in 1931 that Hong Kong would develop the way it has.” Window For Peking Basic to a general feeling of confidence is that China has for the moment no particular desire to change the Colony’s status. Clear evid-

ience of this was provided dur-! ing the period of acute water 'shortage in Hong Kong which i ended only a few weeks ago. The Chinese authorities provided what help they could to relieve it. Peking almost certainly regards the Colony as providing a useful window on the outside world. Moreover. China derives about half of her convertible foreign exchange estimated at £3OO million a year—from Hong Kong, £9O million in the form of exports which are mainly foodstuffs, and about £6O million it is thought, in remittances from overseas Chinese which are channelled through the Colony. Finally, there is the fact that Hong Kong is being industrialised faster and more skilfully than the Chinese could ever hope to do the job. Why not, the planners m Peking probably think, let someone else do the job for them?

The industrial and commercial development is there for anyone to see and admire. The key year was 1949, when an influx of refugees, especially from Shanghai, brought with them the know-how and some at least of the capital on which the textile industry is based. Cotton textiles and clothing are still the mainstay of the economy, accounting for over 50 per cent of exports, which last year were £250 million and are running at a substantially higher level this year. Restrictions in overseas markets have held back growth, but have also—this is but a partial compensation—ensured that prices have been kept higher than they otherwise would have been. Now the whole emphasis is on “trading up.”

Emphasis On Manufactures The Government has encouraged this trend. Twenty million square yards of the annual United Kingdom quota of 185 million square yards for Hong Kong textiles is reserved for goods with a high labour content—that is, garments. Last year the export of cotton greys actually fell, while the sale of every other class of textile product rose. There has been a strong tendency to diversify into wool and synthetic fibres and a general move towards vertical integration in the textile industry. In the largest of these vertical combines, Textile Alliance, Jardine Matheson has a substantial interest. Other industries are pros-

pering plastics, shoes, enamelware, as well as shipbuilding. ship-repairing and shipbreaking. A spectacular success story has been the establishment of a transistor radio industry—exports were 263,000 sets in 1961, over 2.5 million in 1963. In Japan I was told that the cheapest one-or-two waveband sets made in Hong Kong had a very definite price advantage over Japanese sets.

If Hong Kong businessmen have one worry at the moment it is the labour shortage. In another two years the population “bulge” will relieve the strain. In the meantime, wages have been moving up sharply. In the textile industry the minimum is now 10s a day. But an unskilled building labourer usually earns more than this. The fact that Hong Kong products have to be internationally competitive if they are to be sold at all does, however, pose definite limits. In the gloves industry, where wages had gone too high, workers voluntarily accepted a cut when the danger of pricing their products out of the market was realised. Population Explosion That there should be a labour shortage at all when the biggest long-term problem is how to cope with the formidable population explosion which lies ahead is ironic. The Colony regained the level of its pre-war population of 1.6 million in 194849. Since then the influx of refugees from Red China and natural increase have raised this figure to well over 3.5 million. Of this 3.5 million about 40 per cent is under the age of 16. About 750,000 people—the estimates vary widely—live either in squatters’ huts or in housing which is sub-standard by the lowest possible standards one can apply. The Government’s housing programme—the target is to resettle 400.000 people by 1967—wi1l do no more than preserve this unsatisfactory situation. It is very much a case of having to run in order to stand still. The Government's problem is not a financial one. Taxes on corporate profits and personal income arising in tha Colony are 12 i per cent (income arising abroad is not taxed). Yet the Budget is usually in surplus and the business community is in any case more or less resigned to seeing taxes rise somewhat. The difficulties are shortage of land (as demonstrated by a 30-fold rise in land values since 1947) and of physical resources. Only by restricting private building could the resettlement programme, the construction of new schools, etc., be speeded up. Planning Disliked And the one thing which the Government does not want to do is to interfere with the Colony’s economic life. It is true that a banking ordinance is in the pipeline. When in force it will impose a minimum liquidity ratio of 25 per cent, some restrictions on the banks’ investments in equities and real estate, and on advances to directors and their relatives. But there is a distaste for anything which smacks of planning. “How can you plan production when you cannot plan consumption because practically everything your industry turns out is sold abroad?”

It is a question to which there is no easy answer. Yet that the Government will have to become even more active in such fields as housing and education at least is clear. Social and economic discontent, if it were to manifest itself, would endanger political stability. The absence of any political pressures is due to the realisation that the introduction of party-political life as we know it would merely split the people into irreconcilable pro-Peking and pro-Taiwan factions. The Government while in theory despotic, does in fact take care to consult extensively to ensure that important interests can make their views and opinions known. Whether this will be enough in the medium-tenn future will depend on the Colony’s prosperity-

This in turn hinges on its ability to stay ahead of Communist China in industrial knowhow and production techniques. Outside textiles there is a definite lack of managerial and technical ability. There is a gap between the financier and labour which somehow has to be filled. This is one of the reasons for the desire, expressed to me time and again, for more point-venture agreements with British companies. Imported skills could make an important contribution to easing the economic—and thus the social—strains which Hong Kong faces as its population expands in the years ahead.