Hong Kong's cartel-ridden system

March 08, 2019 17:00
The government plays a crucial role in not just creating but also sustaining cartels, which are not necessarily the fittest companies but are most certainly the best politically connected. Photo: HKEJ

One of the great certainties in Hong Kong is that whatever happens, the cartels always end up winning. By strange coincidence, this truism was underlined this week by two entirely unrelated developments in the world of transportation.

First up was Uber’s failed attempt to crash the taxi monopoly by linking up with a small taxicab operator, Tin Shing Motors. Reports say that the taxi company withdrew from the deal under threats of violence and a boycott by insurance companies who, apparently, are worried about losing their mainstream taxi business were they to be associated with this new venture.

Here in a microcosm is a perfect example of collusion between what looks suspiciously like Triad-style behavior combined with the so-called respectable world of insurance where another form of cartel operates.

Secondly, came news that Cathay Pacific was planning a takeover of the budget airline HK Express, owned by the debt-laden mainland-based HNA group. If this deal comes to fruition, it will give even more power in the local aviation industry to Cathay and have the biggest impact on choice for short-haul passengers, i.e., most Hong Kong travelers who have benefited from a modicum of competition offered both by HK Express and its sister company Hong Kong Airlines.

Cathay has seen off competition from other Hong Kong carriers before and maintains its dominant position in the local market aided and abetted by that other monopoly, the government-run Airport Authority of Hong Kong, which allocates landing rights in a way that makes it very difficult for competitors to enter the market.

There is no suggestion of Triad-style behavior here but there is a stench of collusion between the government and a dominant local company.

The bottom line for consumers is the same that it is for all of Hong Kong’s cartel-dominated sectors – higher prices and inferior service.

What is staggering is the extent to which the local economy is riddled with cartels, despite an annual award by a demented right-wing American think tank declaring that Hong Kong has the world’s freest economy.

The reality is that it is far from free in sectors that matter, starting with the most lucrative of all – the property developers’ cartel whose interests are carefully preserved by the government’s ownership of all land in Hong Kong, giving it the ability to control the way it is sold off to prevent new entrants gaining anything more than a toehold.

The consequences of this cartel are known to all and quickly permeate through to other sectors, notably the retail sector where the lack of competition in the property market squeezes out independent retailers and allows the property developers to form a supermarket cartel hitting consumers with some of the world’s most expensive food shopping and the kind of service that can only be sustained in monopoly conditions.

However, official sponsorship of cartels hardly ends here. There is a petroleum retail cartel, bus cartels, broadcasting cartels – not forgetting power supply, shipping, banking and, well, the list is long.

The weakest defense of Hong Kong’s cartel-ridden system is that it is no more than the natural outcome of free competition where survival of the fittest prevails. Missing from this paper-thin apologia is the crucial role played by the government in not just creating but also sustaining the cartels – they are not necessarily the fittest companies but are most certainly the best politically connected.

Another ludicrous argument runs on the lines that Hong Kong is too small to sustain unfettered competition. It’s hard to know where to start with this nonsense, but suffice to say that even in a real free market there would still be a place for regulation alongside a pressing need for competition, which is perfectly viable on a small scale and indeed encourages more entrants to the field.

You do not have to be a free market fanatic to appreciate the advantages of greater competition. Indeed, some of us are entirely unfazed by the participation of the state in certain economic activities such as running utilities, but Hong Kong has managed to end up with the worst of all worlds where the prices of everyday services and commodities are inflated by the cartels and where government-run facilities are contracted out to lowest-cost bidders who carry out their duties in a way that only cost-cutters know how.

Despite all this, the Hong Kong entrepreneurial spirit lingers but it is confounded at every turn.

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Hong Kong-based journalist, broadcaster and book author. His latest book, Defying the Dragon – Hong Kong and the world’s largest dictatorship, will be published by Hurst Publishers in early 2021.