Blessed are the rich in Hong Kong

by Philip Bowring


SCMP October 18, 2004

How rich are we? Do you believe that Hong Kong people are richer than those in Germany and Japan, despite the size of our flats, the levels of car ownership and the amount spent on security, health, education, and the like? But we are, at least according to a comparative table in The Economist, with a per capita gross domestic product of US$28,810 (HK$224,700).

Statistics do, unfortunately, matter. They have become a yardstick of government success and say a lot, true or false, about income distribution. One economist recently noted: "The primary significance of GDP reporting now is as a propaganda tool and as a cheerleading prop for Pollyanna-ish analysts on Wall Street."

I will not bore you with details of why, despite official protestations, I believe that Hong Kong's GDP deflator exaggerates real growth. Nor will I, for now, again dispute the claims of the government that social security recipients were overcompensated because increases reflected projected inflation rather than (as claimed by an April 1998 Legco Finance Committee document) being retrospective.

Let us take the official - not The Economist's - statistics at their word and ask: who gets what of the HK$190,000 that this society is projected to earn on a per capita basis this year?

One thing is for sure, whatever one believes about the timing of welfare adjustments, the old and needy, and those whose sweat built Hong Kong, have been receiving a fast-declining share of total income. Official per capita GDP in the middle of this year was 13 per cent higher than at the time of the handover. But welfare payments have been cut to ensure that they do not grow faster than inflation.

So who does get the national income? If we take the median monthly salary (about $10,000) and multiply it by the size of the working population, we get a figure of $390 billion, or just 31 per cent of GDP at current prices. Use the household income data - median income of $18,000 a month for 2.1 million households - and income is HK$454 billion, or about 36 per cent of GDP. That includes the income of tens of thousands of small businesses. Clearly, the median earner is getting a small slice of total income.

Average household incomes are higher than the median income in most societies. But the situation is extreme in Hong Kong for two reasons. One is that wage and salary differentials are far greater than for any society in the upper-middle global range. The other is the very high level of corporate profits. Gross profits are still about 45 per cent of GDP, compared with 55 per cent paid to employees. The level of profit to turnover of the domestic operations of banks, property companies and utilities remains remarkable.

Big profits sometimes mean strong investment and fast growth. But Hong Kong's investment to GDP ratio is only 25 per cent, which is above western levels but below equivalent East Asian economies. Much of it is attributable to the high price of property. Corporate profits more than household savings explain Hong Kong's huge - $135 billion last year - current account surplus. The savings are being invested outside Hong Kong, buying banks in the US, power stations in Australia and buildings in Shanghai. Median income households are being squeezed, while domestic corporates diversify, often more for the benefit of management than shareholders.

So, upper-middle-class Hong Kong, with your low-tax, $2.2 million household income - 10 times the median level - and your $50,000 a year maid, remember how lucky you are compared with your counterpart in Germany or Japan. And for the bottom 80 per cent of the population, remember how unlucky you are compared with those same peers.


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