Saving The SAR
Writing for another publication not so long ago, an editorial colleague of mine suggested that Hong Kong was finished as a financial center. Well, actually, he didn’t go quite that far. But questions about Hong Kong’s place in the world at present and in the future, now it is nestled firmly in the bosom of communist China, are worth exploring. For a start, it seems incongruous that China should be creating more competition for Hong Kong by establishing financial centers in the mainland, notably Shanghai, where a new free zone for the financial services and investment, commodities trading, and logistics sectors have been created. Then there’s its rivalry with Singapore which has emerged as a regional investment and trading hub par excellence and voted the best place in the world to do business for the sixth year running by the Economist Intelligence Unit. Labuan, the chosen route of investment into South Korea, is also coming up fast on the rails. Hong Kong does undoubtedly have a problem with its narrow tax base, and its open economy is vulnerable to the waxing and waning fortunes of global finance, which leaves the Government’s budget exposed in economic downturns. Earlier this year, the Hong Kong Government’s fiscal commission arrived at the gloomy conclusion that if current fiscal trends continue, i.e. it continues to spend more on public services without raising taxes, it will have a structural deficit on its hands within seven years. The Government doesn’t appear to want to reel in spending, but it does want to keep taxes low. So it has come up with the solution of a rainy day account akin to the sovereign wealth funds used in many oil-rich states. It could be argued that, had the UK had the foresight to do the same before North Sea oil and gas began to run out, it wouldn’t have found itself in such fiscal dire straits. So Hong Kong gets a thumbs-up for what sounds like some sensible financial planning. But then perhaps we shouldn’t have worried anyway. It has fiscal reserves equivalent to about 30 percent of GDP already, and it is not in China’s interests to allow Hong Kong to go to wrack and ruin, as evidenced by its endorsement of the “one country, two systems” mode of government that underpins their relationship. So move along! Nothing to see here!