“Libertarian paradise” were words my hedge fund mentor used to describe the city in which we were working on my first day. These are hardly new words to describe Hong Kong, the liberally economic jewel in the cap of the Far East, but they are crisply accurate ones.
Any entrepreneur, particularly of Western origin, will support this description of Hong Kong when asked. As my work was in the finance sector, I was hardly deprived of opportunities to canvas businesspeople during my time there, and the response was unanimous: if you want to do business, do it here. Much of this sentiment finds credence in a minimal tax system — after all, there are no capital gains, sales, or VAT taxes, and the income and corporate taxes are exceedingly low. But when one asks residents, not just businessmen, why Hong Kong is an entrepreneurial haven, the most consistent response is not strong tax incentives, but a strong rule of law.
This respect for the rules is a key tenet of what might be described as the Hong Kong philosophy, or at least its historical guise (as I will illustrate later, change is ever afoot). Put simply, people in Hong Kong follow laws. This can be demonstrated in any number of entertaining ways, with statistics backing up the casual assertions of tipsy financial analysts: last year’s homicide rate, for instance, was half that of New York City’s — in May alone. Yet that which seems like an abstraction of culture, I could also personally see in the behavior of the everyday pedestrian. Crossing the street in any other big city is an opportunistic affair — sprinting when you get the chance, not when signs tell you to do so. In Hong Kong, however, even amidst the hustle and bustle of the early morning rush, people do not jaywalk. The spectacle of crowds of Hong Kong Chinese waiting assembled on both sides of an empty road is a surreal one.
With the gift of hindsight, perhaps this should not have surprised me. As a middle-aged Hong Kong Chinese man told me during a lunch, “For Chinese people, the most important thing is harmony.” This Confucian philosophy contrasts sharply with the Western tradition of adversarial politics and a comparatively individualistic ethos. The distinction can perhaps be seen in the differing approaches to social concerns. In the Eastern tradition, considerable emphasis rests on familial responsibilities; in the West, personal acts of charity, such as volunteering, are elevated. However, there is evidence that the East Asian emphasis on peace and tranquility might be overstated, or at least currently undergoing a palpable transformation. The annual July 1st protests — coinciding with the anniversary of the handover from the UK to China in 1997 — came to a head last year as the demonstrations took on a distinctly anti-Mainland sentiment. The appointment of CY Leung to the role of Hong Kong Chief Executive (a fitting title for the leader of such a business-oriented region) was particular cause for antagonism, given the widespread alleggation that Mr. Leung is a closet Communist Party leader who was handpicked by Beijing.
Furthermore, Hong Kong’s long lasting status as an accommodating trade hub has been recently challenged. An unprecedented strike enacted by dock workers against Hong Kong Terminals Ltd lasted 40 days, the longest ever. That it was levied against a company owned by Li Ka Shing, Asia’s richest man and one of the most powerful in Hong Kong, only served to draw more attention to the event. Though the final compromise on a wage increase of 9.8% was significantly closer to the figure offered by the company (7%) than that demanded by the workers (20%), the David and Goliath narrative that defined the incident now seems more important than the particulars. Yet it’s impossible to tell whether this was a blip in Hong Kong’s mercantilist idyll or a sign of things to come. When I asked for their opinions on the matter, Hong Kong’s professional financiers were for the most part confident this was a one-off, but a few articulated vague concerns about more long-term repercussions.
These headwinds are not restricted to the plight of overworked and underpaid dockworkers. Rising rates of inequality (GINI coefficient has risen steadily from 0.43 to 0.53 since 1971) have resulted in an ever-growing uneasiness that threatens to boil over. Sky-high property prices in a city with the highest population density in the world — starkly evident in Hong Kong’s number of skyscrapers, roughly double that of New York City — are a principal cause of this antagonism. There exists a general perception that this state of affairs won’t be reconciled within the political architecture now in place. A chief executive elected by a committee consisting of 1200 representatives, drawn primarily from functional constituencies (ie Agriculture, Finance, and Engineering) is not trusted with carrying out the actions necessary to deal with national problems. That the electorate is composed of special interests rather than democratic representatives, representatives who might better further the objective of pursuing the best outcome for all constituencies, serves only to fuel this negative perception.
If conditions do not improve for the less fortunate among Hong Kong’s citizens, the long standing tradition of the rule of law — a bastion of Hong Kong’s success as a commercial center — will become significantly weakened. The growing influence of organized labor, manifest in recent union-organized strikes, could also prove a decisive factor determining the near political future in Hong Kong. The city’s people may not wait long for their emergent issues to be solved in an impactful and lasting way. If a more amiable balance between mercantile freedom and widespread prosperity is not found, and soon, Hong Kong’s law-abiding citizenry could become impatient, restless and, yes, perhaps even lawless.
A very astute observation, well written and as the song goes; “these times they are a changing”!