27 May 2019
To grow its GDP, Hong Kong should encourage more professionals from the mainland to come to the city and contribute to its economy. Photo: Xinhua
To grow its GDP, Hong Kong should encourage more professionals from the mainland to come to the city and contribute to its economy. Photo: Xinhua

GDP is more crucial than GNP for Hong Kong now

Is it more important to encourage Hong Kong talent in professional services to work in the mainland, or to attract mainland talent to Hong Kong?

Which would be better to boost Hong Kong’s economy?

From a macro viewpoint, the question is equivalent to: is the improvement of gross domestic product (GDP) or gross national product (GNP) more urgent for Hong Kong?

While GDP counts the total value of the products and services produced within an economy regardless of the producers’ or service providers’ nationality, GNP is a measure of what its citizens produce or provide, whether or not that is done within its borders.

So the value created by Hongkongers in the mainland will be counted in the city’s GNP but not GDP.

Encouraging Hong Kongers to work in the mainland will improve the city’s GNP and in turn promote the GDP, as they will have more to spend in Hong Kong.

But two questions follow.

Firstly, if talent from professional services leaves Hong Kong to work in the mainland, can the city, in the long term, afford the shrinking of its big service industries — after losing its manufacturing businesses, which were once a pillar of the economy?

Secondly, it will still be a small group of professionals that can enjoy the rewards of their work in the mainland. But it won’t bring ordinary Hong Kong residents any benefit.

Professional talent in Hong Kong is a small fraction of the city’s total population.

They may not contribute much to local consumption, and the already big income gap between the group and those at the bottom of society will be widened.

Only an increase in GDP, which means stimulating domestic commercial activities, can keep the city’s unemployment rate low, help increase the income of citizens and benefit the entire society.

The balance between GDP and GNP is a challenge for most developed economies.

When the local economy is developed, professional talent will be in oversupply and thus seek opportunities in external markets.

To counter that, the United States has been promoting the return of American manufacturing for years.

Hong Kong is in a similar situation.

It was a historical inevitability that its manufacturers moved their factories to the Pearl River Delta region.

The move has brought the city big advantages, and the hollowing out of its manufacturing industry is a legacy issue.

Many have being trying to transform local manufacturing businesses into high-end ones.

The slowing of Hong Kong’s economic growth in recent years, despite external factors, can be attributed to weak domestic business activity.

Although cross-border financial services have shown promising developments, for example offshore renminbi services, the cross-border demand for trade, tourism and professional services has been declining, dragging down total demand.

So Hong Kong should focus on attracting more mainland talent and enterprises to move to the city, instead of in the opposite direction.

Luckily, the mainland companies and talent are trying to “go out”, and the central government has stepped up the opening of its economy and emphasized Hong Kong’s role as a bridge linking the mainland and the world.

The Hong Kong government and business community should seize the chance to serve these enterprises and people better on their way out of the mainland.

I suggest that the central government further encourage mainland firms to establish investment management companies in Hong Kong, encourage mainlanders to use Hong Kong’s private banking or wealth management services, and set up more “One Belt, One Road”-related organizations, so as to maintain steady growth in Hong Kong’s economy in the future.

This article appeared in the Hong Kong Economic Journal on Dec. 30.

Translation by Myssie You

[Chinese version中文版]

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General manager and chief economist of research department, China CITIC Bank International Ltd.

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