Some political figures and celebrities have been advocating the “local economy” concept in Hong Kong. They encourage things like purchasing goods in locally-owned stores or growing our own vegetables on rooftop gardens. Now, let us review whether such initiatives can really make any difference to our economy.
Hong Kong is an “extroverted” economy. In 2014, one third of retail sales in the territory came from mainland visitors. Of the HK$3.7 trillion worth of import and export value, nearly half was contributed by extroverted sectors like exports, financial services, insurance, logistics, etc. Local consumption and related services accounted for only 10 percent of the total GDP.
We can’t equate “local economy” to companies owned by Hongkongers, or to Hong Kong consumers or to support for small businesses. The different understandings of the phrase stem from the various socio-political backgrounds of the “interpreters”.
International market has always been a key part of Hong Kong’s economy. Gross national income (GNI) in the city has long being higher than the GDP. The situation for mainland China and Singapore are the opposite.
GNI measures the income of local residents and companies from both domestic and overseas markets. Hong Kong’s higher GNI relative to GDP means that Hong Kong companies are making money abroad and transferring the profits back to the city.
Meanwhile in the case of China and Singapore, their stronger GDP compared to GNI means that overseas companies are investing in the two countries to gain profits.
Hong Kong is no longer a key market for Hong Kong enterprises. The promotion of “local economy” is therefore more of an emotional appeal rather than a rational market decision.
Frankly speaking, the structure of larger GNI relative to GDP brings some problems. When Hong Kong companies make overseas investments, the jobs they offer in the city will be reduced.
A typical example is what we witnessed in the 1990s when many manufacturers moved their factories to the Pearl River Delta (PRD) region, leaving Hong Kong with shortage of industrial talents and a vastly diminished production capabilities.
As entry-level jobs account for most of the job vacancies, the younger generation cannot gain enough professional experience and people are hence worried about their future.
With the launch of many incentive policies in the Pearl River Delta region, growing cross border e-commerce activities, and anti-mainland visitor campaigns in Hong Kong, some business owners have been relocating their Hong Kong retail businesses to the PRD.
Such investment in the will in the long term benefit Hong Kong’s GNI, but will reduce the GDP. While companies become more profitable, ordinary Hongkongers will suffer.
Moreover, as retail and wholesale businesses move out of Hong Kong, the city’s status as a shopping paradise will be diminished, while also denting its internationalization level and its position as a diversified hub market.
In boosting GNI or GDP, the ultimate goal is the development of the economy and the improvement of people’s lives.
Given the structure of Hong Kong’s economy, businesses in the city constantly need to explore overseas markets. Economic development is always about balancing the costs and profitability.
This article appeared in the Hong Kong Economic Journal on Jan. 4.
Translation by Myssie You
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