Hongkong:

Uses and Abuses of Stats

First, for once let me, for once, praise the Census and Statistics Department. The borderline between lies, damned lies and statistics may be a fine one, but we do need data if we at the make a realistic appraisal of where we are, where we are going under present policies and what might be the consequences of change.

Kudos to the department for its realistic revision of the population data to remove a large number of those classed as Permanent Residents who in reality are only periodic visitors, now classed as "mobile residents" and separated from "usual residents". The change has reduced the total population by 200,000 or 3%. That is a significant difference but let us hope it does not become another reason for the government again to cave in to the interests of developers and further reduce housing and land production.

Let us hope too it is not used to justify more import of more cheap labour to meet the demands of those in the business community with scant commitment to increasing productivity and training of their existing workers. Indeed, let us have a real debate about population. Does Hongkong really need an intake of 50,000 a year from the mainland?

It's amazing that a government which created such a clamour over an alleged flood right of abode claimants has ever thought to discuss the one way permit issue. The fixed daily entry under one way permits was originally the product of a Sino-British compromise, with scant reference to Hongkong's economic or social needs. Is it still relevant today? And should not Hongkong control the numbers, qualifications and identity of entrants? Or is this one of those questions we should not be talking about because it might embarrass our Confucian Communist elders and betters?

It is hard to see how the immigration question can be avoided if we are also to consider an issue which the government itself is rightly worried about: widening income disparities. Hongkong is at a stage of economic development when they should be shrinking. Income disparities are far bigger than in for example Korea or Taiwan. They may well be breeding just the dependent class which mega rich businessmen and highly paid and pensioned civil servants complain about - those who have come to expect cheap housing, free health care, welfare in old age, etc. But what choice do the unskilled have they have if they are paid just $6,000 for a 60 hour week.

At this income level, the private sector can provide just cage dwellings and quack doctors. Meanwhile the influx of mostly unskilled mainland migrants and foreign contract labour has also helped ensure that productivity growth in the past decade has lagged far behind Korea and Taiwan, countries with minimal immigration and low natural rates of increase.

Of course there are counter-arguments. With its abnormally low fertility rate and rapidly aging population, Hongkong term needs fresh migrant blood now to provide a future economic dynamic, not just cheap labour, and will need more in future to support an increased number of (if they can afford it) retirees.

There are other ways of addressing the inequality issue other than reducing immigration. But the alternatives are equally unlikely to appeal to the sort of business figures who currently have this government's ear.

Now a complaint about lies and statistics. Census and Statistics department has produced an inaccurate picture of the rate of recovery of the Hongkong economy. This is not to suggest that it is being deliberately misleading but the product of its endeavors is seriously distorted. In what is claimed to be "real terms" the economy was declared to have grown by 10.8% in the second quarter following 14% in the first, making a first half total of 12.5%.

This number has naturally been seized by the government as evidence of Hongkong's dynamism and its own competence, and swallowed whole by the usual crowd of brokerage salesmen/economists ever anxious for bullish news. The reality is that 7.2% -- more than - half of the first half growth came from the negative GDP deflator. Growth in actual money (so-called "nominal") terms was just 4.5% -- current price GDP of HK$615 bn compared with HK$589 a year earlier.

We all know that some prices in Hongkong have fallen. But 7.2% across the economy. What sort of nonsense is this? The consumer price index was down 5.7% , and even that is a major distortion. Housing was the biggest contributor. It has a 29% weighting in the CPI It is based mainly on private sector residential rentals. But the reality is that most people either pay rent to the government - public housing costs have been static - or own their own homes, in which case most pay mortgages which are directly related to prime interest rate, which has been higher this year than last.

Another curiosity of the deflator has been that retained import prices were higher over the past year, but those in the shops fell. That may be good for consumers but indicates a severe margin squeeze on retail business. It is a transfer of income within the economy, not an expansion. The deflator's trend is also at variance with the price trends of international trade. Meanwhile wages have been static and producer prices marginally higher.

To give the department its due, the First Half Economic Report for the first time give an explanation of its deflator methodology. I quote: "The divergent movement in the GDP deflator against that in the total final demand deflator was mostly due to the distinct rebound in the price deflator for imports of goods which, as a negative entry in the computation of the GDP deflator, had the effect of enlarging the decline in the GDP deflator". In brief, plus equals minus.

Whatever the mathematical merits of this computation, it accords little with the situation on the ground as represented by employment - a decline only from 6.1% to 5% over 12 months, only 4% monetary growth, etc. I am quite prepared to believe in a respectable 7% growth, including some deflation. But 12.5% sounds more like a dot com story than reality for employees, consumers or most business. ends  

 

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