Hong Kong’s economic restructuring

Affected by the current political events, the Hong Kong economy has entered a technical recession, and the economic dilemma will only become more severe in the near future

However, the bigger challenge facing the Hong Kong economy is that the prospects for long-term economic growth are uncertain. The main crux is that the economic structure is too single and the growth of traditional industries is weak. Only the transformation of the economic structure is the only way out for Hong Kong’s economy.

Single industrial structure

In the 10 years from 2009 to 2018, Hong Kong’s economic growth has slowed markedly. The annual GDP growth rate is only 2.81%, far lower than the average growth rate of about 4.72% from 1999 to 2008. The growth performance of Hong Kong’s economy is also significantly lower than the growth performance of Singapore in the same period. As an export-oriented open economy, Singapore’s average growth rate over the past 10 years was 4.68%, which greatly widened the gap with Hong Kong.

Hong Kong’s economic growth is weak, and the reasons can be seen from the industrial structure. Hong Kong has a single industrial structure, and agriculture and manufacturing account for a small proportion of the entire economy. 4 pillar industries (trade and logistics, financial services, professional and industrial and commercial support services, tourism) as the main driving force for Hong Kong’s economic development, its added value accounted for 60.3% of Hong Kong’s gross domestic product (GDP) peak in 2007, in recent years It has declined but still accounts for more than 55% (Source: Census and Statistics Department). The most important of these are trade and logistics and financial services, each accounting for 21.5% and 18.9% (2017). These two export-oriented core industries drive the development of tourism, retail and related support services (such as legal services), which is the locomotive of Hong Kong’s economy. However, during the 10 years from 2007 to 2017, the average annual growth rate of these two industries was 3% and 4.1%, respectively, far lower than the previous growth rate, and the driving force of the locomotive dropped significantly.

The future of Hong Kong’s two core pillar industries is even less optimistic. On the one hand, the trend of anti-globalization has intensified in the world. International trade and cross-border capital flows have not increased and decreased in recent years, and may continue to deteriorate for a long time to come. Singapore, which relies heavily on (but not as dependent on Hong Kong) trade and finance, has barely grown in the past two quarters. In the era of anti-globalization, Hong Kong’s trade and financial industry must continue to grow, and it is undoubtedly a huge challenge.

On the other hand, in the new wave of digital revolution, an important economic trend is de-intermediation. This has far-reaching implications for the intermediary-based Hong Kong core pillar industry. Alibaba Group announced at the China International Import Expo last year that it will achieve US$200 billion in imports over the next five years. Jingdong also has a similar ambitious import plan. Just as domestic trade and retail are increasingly being replaced by e-commerce, more and more import trade and related customs logistics financial services will also be dominated by e-commerce. The rapid development of financial technology, such as electronic digitization in the fields of payment, transfer, credit, credit, etc., and the artificial intelligence of wealth management and investment, are not the impact on traditional financial intermediary services.

From this we can see that Hong Kong’s too single industrial structure is now exhausted, and in the long run, the impact of anti-globalization and de-intermediation will make it even more difficult to sustain. Hong Kong needs to strengthen the competitiveness of its pillar industries, but the more important task is to transform the economic structure.

Create an Asian Medical Education Center

When considering the development of new core industries, the new industry needs to meet two conditions at the same time. First, we must meet and rely on Hong Kong’s comparative advantage and be able to take the lead in global competition. Second, we must adapt to the future economic, social and technological trends, have sufficient market demand, and bring sustained growth to the Hong Kong economy. power. The trade and logistics industry and the financial services industry are in line with Hong Kong’s comparative advantages, but as the above analysis shows, future demand is declining and there is limited room for growth. In recent years, the Hong Kong Government has proposed to vigorously develop science, support innovative enterprises, and develop artificial intelligence and other policies. This is certainly a proper move to adapt to the future trend. However, it is unrealistic for Shinco to form a core industry that promotes Hong Kong’s economy for a long time. Hong Kong’s investment in research and development is only 0.8% of GDP, while R&D in developed economies accounts for more than 3% of GDP. Hong Kong has no particular advantage in terms of data, markets and talents that are vital in the digital revolution era, let alone other regions that have developed strong first-mover advantages.

The author believes that the development of high-end professional services and the creation of Asian medical, educational and cultural centers should be the direction of Hong Kong’s economic restructuring. As early as 2009, the Hong Kong government has determined that six industries including culture and creativity, education and medical care will be developed as advantageous industries. Unfortunately, this policy has not been implemented in the past 10 years.

First of all, Hong Kong has a unique advantage in developing these high-end professional services. Hong Kong’s security and the rule of law are necessary conditions for the development of these industries; Hong Kong’s internationalization and convenient transportation are the natural advantages of these industries in international competition. These industries have high technical thresholds, and Hong Kong has established Asia’s leading position in these areas, such as medical and education; or has a glorious tradition, such as Wenchuang. The key is how to take advantage of Hong Kong’s unique advantages and scale up these professional services industries into a new driving force for Hong Kong’s economy.

Secondly, the international market for high-end professional services has broad prospects and the demand is constantly expanding. Some media reports and cited data pointed out that the global medical tourism industry has grown from less than 10 billion US dollars in 2000 to 700 billion US dollars in 2017, and has maintained growth at a rate of 20% per year. It has become the fastest growing one in the world. Emerging industry. In Japan, for example, high-end medical examinations, especially early screening and prevention of cancer, are expected to attract about 310,000 Chinese tourists who are only for medical examinations each year. In the education industry, international education, as Australia’s third largest export industry, creates nearly $20 billion in value annually for Australia. In particular, Australia’s public education has been greatly supported by the huge benefits created by the industrialization of study abroad, which has enriched educational resources. This is also a reference for Hong Kong, where public education resources are tight. At the same time, the global output value of the cultural and creative industry is as high as 2.25 trillion US dollars.

High-end professional and public services promote each other

Whether the development of high-end medical and educational industries will dilute public resources and reduce the quality of public services is the first issue that must be clarified. As long as the government is properly planned and properly guided, the medical and educational industrialization will not only conflict with public services, but will also promote the promotion of public services.

Taking medical care as an example, although the public medical system in Hong Kong has guaranteed the public to enjoy quality medical services at low prices, the shortage of medical practitioners, the tight beds and the long waiting time of patients have become more and more serious. Although the government’s medical expenses have increased year by year, the proportion of GDP is only about 5.5% to 5.7%, far below the international average. How to expand the medical supply capacity under financially sustainable conditions without reducing the income and incentives of medical professionals has always been a problem that plagues the medical system in Hong Kong. By developing high-end medical industry, opening up from the demand side and guiding private capital and government investment together, it is a solution to increase medical supply capacity and improve medical public services.

Higher education in Hong Kong is relatively backward in terms of public services. At present, only 15,000 local students are subsidized to enter public universities each year, accounting for about 25% of the young people in the world, while 70% of the young people in other developed economies in the world can enjoy higher education. The government should adopt a series of policies to increase the number of local admissions to 50% as soon as possible. The sharp increase in local school places in the short term will only put excessive pressure on fiscal expenditures by public finances. With reference to the Australian experience, it is a viable option to take advantage of the high standard of internationalization of higher education in Hong Kong to attract the right amount of non-local students to study at their own expense, thereby increasing the funding for school education in Hong Kong and increasing teaching resources.

Institutional innovation and proper planning are key

The development of the high-end professional service industry requires the joint promotion of the government and the society, and it requires the joint action of public funds and social capital. The government should actively guide, properly plan, and expand supply capacity in a steady and orderly manner to ensure a steady increase in public service water.

Institutional innovation is the key to releasing supply capacity. The improvement of the supply capacity of medical services requires strengthening the ability of local medical education to cultivate talents. Access rules and conditions must also be gradually relaxed. The introduction of international demand, the construction of private hospitals, the support of the medical care system, the relaxation of physician qualifications, and the simultaneous advancement under the coordination of the government can continuously improve the supply capacity. In higher education, delayed retirement of teaching staff can supplement existing teaching resources in the short term. Increase the funding for education research, while improving the allocation of funds to improve fairness and resource efficiency, coupled with an orderly increase in self-funded study abroad, can gradually improve the supply of higher education. To restore the glory of the past, Hong Kong’s cultural and creative industries need the government to increase investment, create the environment and promote the good ecology of cultural and creative prosperity.


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