Hongkong: As I shall be out of Hongkong when this column appears, I shall refrain for now from analysing the stock phenomenon. Suffice for now to see in it both similarities to a bizarre religious cult and to a confidence trick of epic proportions. It occupies that fertile ground - long known to Filipino healers -- where (investor) faith and (investment bank) fakery meet. Instead, in the wake of the release of the latest Hongkong population data, and the approach of the Mandatory Provident Fund, it is worth dwelling on the SAR's demography and how this community is to maintain itself at the income standard to which it has become accustomed. The first thing to recognise is how lucky Hongkong in general (and excluding a large tier of very low wage earners) currently is. It is hard to know whether that luck will hold for the next few decades, but the nature of the good fortune needs to be noted if bitter disappointment is not to befall sometime in the future. At present, Hongkong is enjoying the economic advantages of the following: * A very high proportion of the total population is in the workforce - 51%. This is about as high as it can get. * The dependency ratio - those of school age or over 65 - is at an all time low - but will soon rise. * It has access to migration of people of similar culture at a rate which the government partly controls. * It has its disposal a large pool of cheap and impermanent labour, mostly domestic, which makes few claims on the tax system but has a huge beneficial impact on living standards of residents, particularly of the middle and upper income classes. Roughly one in five households has a domestic servant, a level hard to find even in feudal economies and unthinkable in modern OECD ones. * Without these huge current benefits it would be worrying much more about the fact that it is starting a compulsory provident fund scheme decades after every other state at its level of development, and when its population is already aging rapidly. The MPF will be of modest benefit to those reaching the current retirement age of 65 within the next 25 years. That amounts to a remarkable 2.1 million people or 30% of the existing population! Those who have adequate other savings may feel secure enough. But the fact remains that it is the productive capacity of the economy at the time, not just the level of financial savings, which will determine future standards of living. That means there must be sufficient labour force to create incomes for retirees. Yet Hongkong currently has one of the lowest fertility rates in the whole world! The number of births has fallen from 70,000 a decade ago to just 50,000, though the number of women in the fertile 15-49 age bracket is at peak of 2 million and will now fall. There is still a slight natural annual increase in the population - 18,000 last year. But as the number of women of child bearing age diminishes, as it soon will, unless there is a sharp revival in the fertility rate not only will the number of births continue to fall but the population, excluding migrants, will begin to decline. Another troubling statistic, for men in particular, is that the excess of male over female births has been above the natural average - though to nothing like the alarming extent on the mainland. Exactly what combination of economic pressures, social expectations and personal choice cause Hongkong to have such a low fertility rate may be worthy of study. For the middle classes, access to cheap domestic labour may actually inhibit reproduction by making it possible to have a full time career, perhaps combined with a single child, rather than become a full-time housewife happy to have two or more children. In any event it underlines how even more dependent Hongkong is going to be on immigration of the able bodied workers - or disposing of the the elderly to low cost, low quality homes on the mainland - if it is to maintain its standard of living as the current residents age and leave few children either to care for them directly or provide the people to generate the national income to support them. People are THE indispensable factor of production. Instead of being concerned about these crucial demographic issues, Hongkong seems easily led into fears of being swamped. Remember the government's claims that the court decision on right of abode threatened a flood of illegitimate children swamping a school system, which actually has a fast declining primary intake, and leading to a surge in unemployment when Hongkong's economy is underpinned by half a million temporary low paid foreign workers. So what of the future? Given the income differentials it seems reasonable to assume that the mainland will supply willing migrants for the foreseeable future. But that might prove a false assumption if living standards continue to make rapid gains in Guangdong. Or when the mainland itself begins to feel the effects on its economy of the one child policy. Already the labour force growth rate is down to about 1% and within 15 years the average age of mainlanders will have increased rapidly as those born during the high-birth rate Maoist era move towards late middle age. Numbers in the main reproductive age group, 25 to 25, will soon decline and there will be an notable shortage of women - giving them a sexual as well as economic power which could reverse China's patriarchal traditions. Hongkong's access to cheap foreign domestic labour may continue for the foreseeable future. Or it may become a victim of political pressures. These could be local, if unemployment sticks at levels higher than the earlier norm, or from the mainland if feels strongly that compatriots should get the first pick of any job opportunities in Hongkong. There are no certainties in demographics - or immigration policies. But Hongkong needs to understand some of the props of present prosperity if it is to plan wisely for the future. ends : 




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