Google, “fleeing Hong Kong”, today, and over 100 headlines immediately present themselves. Most speak of deep fear and plans to escape.
But here is another very recent headline from the South China Morning Post: “Hong Kong’s home-buying frenzy reaches down to small flats”. This story goes on to explain that at a new, single block development in Kowloon, 98% of flats on offer sold swiftly in mid-June, with up to nine buyers vying for each flat. The average price was over A$46,000 per square metre. The smallest flats sold were about 20 square metres, priced at around A$850,000.
There are similar reports from other popular, well located developments. Some 90% of flats in a new development in the New Territories comprising over 3,000 flats have now been sold for a total figure of over A$5.5 billion. Professional, informed predictions of housing price rises in Hong Kong over the next twelve months range from 5% to 8%
How does one explain figures like these If so many are bolting from the Hong Kong Special Administrative Region (HKSAR) or are getting set to do so? The short answer is that the accounts of fleeing have been – like those recording Mark Twain’s death as he was still drawing breath – more than somewhat exaggerated.
At the outset, one thing we should not forget is that, under a 1980, British initiated scheme, a daily quota of 150 qualifying Mainland immigrants per day is allowed to settle in Hong Kong. This means over 500,000 new residents, from the Mainland, are typically added to the population of the HKSAR each decade.
Next, it is useful to consider some relevant, basic political and economic factors.
Enduring, very low interest rates now apply to money borrowed to purchase real estate across the First World. These rates date back well over a decade to around 2008, when the US-incubated Global Financial Crisis (GFC) spread very widely and many central banks followed the rescue-plan lead of the US Federal Reserve by lowering interest rates dramatically and flooding markets with new – and borrowed – money. The US was just beginning to move out of this phase over two years ago and then the COVID pandemic struck. America mishandled this pivotal health challenge in an extraordinarily damaging way resulting in a fresh pitch back to ultra-low interest rates and new, colossal borrowing and money-minting.
The Hong Kong dollar is pegged to the US dollar so rates here are very low and have been very low for over a decade. The Hong Kong Government has also long retained huge fiscal reserves. For many years these have covered around two years total government spending. One key result is that Hong Kong has been able to switch to massive deficit spending over the last two years to cushion the grim economic impact of, first, the 2019 insurrection and then the COVID pandemic. The Government has not had to borrow a cent. The fiscal reserves, although down by over 20%, still stood at over A$160 billion in February 2021. Current total annual government expenditure (increased by extra relief measures) exceeds A$100 billion.
The HKSAR economy is now growing again at over 7% after falling significantly during the worst of the COVID pandemic. Moreover, the HKSAR remains robustly linked to and supported by China, the single major economy to come through the pandemic without falling into a severe recession – and now growing with more potency than any other leading economy.
Radical legislative reforms applied by Beijing over the last year within the HKSAR have fundamentally helped to drop the curtain on the extensive insurgency (while deterring any possible recurrence) and the COVID pandemic has, overall, been well managed. Taken together, all of these influences provide positive foundations supporting the property market. However, a significantly, declining population would plainly be a negative influence.
It is a fact that Hong Kong people continue to migrate and the number actually doing so (rather than talking about doing so) has, so far, lifted moderately. Adventurous Hong Kong people have long shown a willingness to relocate. Many have done so very successfully in the past. They have consistently left seeking a better life for their families. Some have also looked to escape political concerns. Many have later returned.
Widespread reports today explain that numbers of HKSAR residents are thinking along these lines again. A few seek to escape being charged with serious crimes arising out of the terrible political violence which ran for so many months from June, 2019. Still more harbor general concerns about how certain freedoms may be limited after the application of the new National Security Law drafted for the HKSAR in Beijing. Even when these concerns (widely encouraged by some with a political agenda) may be misguided, they are still genuinely felt.
Most looking at relocation today, as in the past, are primarily concerned about building a better future for their families, above all. Political considerations may figure but are typically ancillary.
It is easy, but unwise, when looking at relocation to become too focused on what it is that one wants to leave behind. Far more important to think carefully about what you – and your family – may be stepping into with any move. After feeling any initial surge in the desire to move, most Hong Kong residents do carefully weigh all the positive and adverse consequences of relocation.
The most popular destinations for migration continue to be the developed Anglo-democracies: Australia, Canada, New Zealand, UK and US. These are all, however, comparatively less attractive than they were two-three decades ago and, looking forward, they each face fresh difficulties which foreshadow possible declining prospects for new migrants.
Each of these jurisdictions choose governments by regular elections and they offer apparently robust systems for protecting individual rights. Any swift Google search will confirm, however, that all of these jurisdictions have also long had significantly higher general crime levels and amplified substance abuse in schools compared to Hong Kong. Next, they all have much higher taxation and they each tolerate levels of service inefficiency seldom encountered in Hong Kong in the same embedded way. More recently, those human rights protections have proved to be notably flimsy as anti-Chinese sentiment has gained far greater traction and the intensity of race-based denigration has escalated. In other words, it is not all sunny uplands.
Moreover, how these countries have each handled the extraordinary challenges arising from the COVID-19 pandemic reveal some important points, both directly and indirectly.
First, New Zealand has, overall, done a first rate job of coping with the COVID pandemic. It took the very best advantage of its remote island geography. Australia is next best amongst the five, but it has encountered recurring lapses. The US is now doing better. But it spent the best part of a year creating a First World, inverted gold standard by getting so much lethally wrong in managing this pandemic, exposing manifestly sordid aspects within the core of its political system at the same time.
Next, let’s consider the indirect consequences. In all these jurisdictions governments have rightly moved to try and moderate the dreadful impact of the pandemic on the livelihood of millions of citizens and the widest range of employers and businesses. They have done this by providing – when they can agree – a vast array of new, specialized welfare and business support measures.
All of this spending has required additional public sector borrowing on an immense scale. Freshly initiated debt is accumulating with each passing month. Fortunately, we live in a time of very low interest rates, so the cost of borrowing is less grim than it might be. But this debt is going to have to be paid back over coming years. None of these jurisdictions has fiscal reserves even remotely comparable to those held by the HKSAR Government. This means there is a conspicuous possibility that new migrants will face significantly higher taxation in all these jurisdictions in coming years.
Next, consider education, using Australia as a prime example. Tertiary education was until recently one of the top “exports”. International student numbers have shrunk to a fraction of what they were and Australian universities now face multi-billion dollar operating deficits. Urged on by Washington, Canberra has made a forbidding situation far worse by engaging in a series of plainly avoidable disputes with Beijing. Without Mainland Chinese and other international students, the entire education funding model is in severe peril. That means – for migrants – that tertiary and even secondary education in Australia may be seriously compromised compared to what has been offered, because of ominous funding shortfalls.
Indeed, China has been by far Australia’s most significant trading partner where the trade surplus in Australia’s favour exceeds A$50 billion each year. If this surplus slides over the coming decade – as Canberra improvidently intensifies it war-of-words with Beijing – then Australia’s standard of living will also slide.
China and Hong Kong, meanwhile, have clearly managed the pandemic better than any of the five listed countries, apart, possibly, from New Zealand.
When one looks at the fiscal, economic and education disturbances confronting Australia – mirrored elsewhere – new migrants from Hong Kong can expect higher taxation, a continuing disruption to business as usual, plus elevated levels of race-based disparagement. When one looks at how well placed the HKSAR is, in comparison, those relocating would be wise to burn as few bridges as possible when moving. Most looking at moving, know this: any decision to move will, typically, only be taken after prudent reflection.
Past experience has shown how Hong Kong emigrants often make a great success of relocating – but numbers also frequently find their way back to the HKSAR. It is likely that this pattern will repeat itself.
Finally, in the interests of transparency, I should confirm my own standpoint. I vividly remember what I was told, in 1992, soon after first arriving in Hong Kong to work at what was then the City Polytechnic of Hong Kong. A candid Australian holding a senior academic position there said that if I ever felt bored, all I needed to do was walk outside to dispel that feeling. There was always something happening, something to see. There was so much possibility in the air. Hong Kong has changed greatly since then – not least over the last two years. However, notwithstanding recent far-reaching reforms, I still step outside each day into a remarkably safe and vibrant city. Based on any measured, comparative assessment, the HKSAR remains an extraordinary place to live.
Richard Cullen is an Adjunct Professor in the Faculty of Law at the University of Hong Kong. He was previously a Professor in the Department of Business Law and Taxation at Monash University in Melbourne, Australia.
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