Milton Friedman, recipient of the Nobel Prize in Economics in 1976, once said: “If you want to see capitalism in action, go to Hong Kong.” Hong Kong was handed over to China in 1997 under the “one country, two systems” principle, with the Chinese Communist Party (CCP) saying it would maintain the territory’s capitalist system and way of life unchanged for 50 years.
For the last 13 years, Hong Kong has, on the surface, remained unchanged, but in real terms, conditions are already changing. Based on the annual Index of Economic Freedom report compiled by the Wall Street Journal and the Heritage Foundation, while Hong Kong has kept its high level of economic freedom, the system is in fact rotten.
This became more evident after Hong Kong signed the Closer Economic Partnership Arrangement (CEPA) with China in 2003. With Hong Kong’s economy falling under CCP control, the overall environment and quality of life in the territory deteriorated, the rich-poor gap widened and social problems worsened. Not long ago, a CNN feature showed 19 Hong Kong residents squeezed into a 58m² “cage-like home,” drawing a stark contrast with the territory’s astronomically expensive luxury mansions.
Last October, BusinessWeek cited a report by the UN Development Program that said Hong Kong’s rich-poor gap, based on the Gini coefficient, was the widest among the world’s advanced economies. Generally, a coefficient of 0.4 is seen as a warning sign: Hong Kong already shot past this level by scoring 0.434. The report also said Hong Kong has both a large number of extremely wealthy people and the world’s biggest public housing sector. Moreover, other than foreign workers, workers in the territory do not enjoy minimum wages.
Aside from the economic drop-off, political freedoms have fared even worse. General elections for chief executive and members of the Legislative Council and Executive Council have repeatedly been postponed. Hong Kong also blindly follows Beijing’s lead in issuing entry permits. For instance, six key members of the US-based Shen Yun Performing Arts (神韻藝術團) troupe were refused visas at the last moment last week, forcing the entire group to cancel seven sold-out performances.
Taiwanese should pay close attention to Hong Kong as it serves an example of what could happen here if the government continued to desperately seek an economic cooperation framework agreement (ECFA) with China. The current economic recovery already reflects this — a stock market awash in funds and speculation in the housing market.
Taiwan’s richest 20 percent continues to be more than six times wealthier than the poorest 20 percent. Its Gini coefficient hovers between 0.34 and 0.35, unemployment is near 6 percent and wage hikes in the industrial and service sectors since 1991 have lagged significantly behind economic growth figures. Since 2000, salary growth has slowed further and even begun to drop. Aside from rising housing prices, there has also been an influx of hot money from abroad. It is hard to imagine what will happen if these problems are compounded by massive amounts of Chinese investment.
More importantly, the reason Hong Kong has been able to maintain the appearance of “one country, two systems” is that Taiwan has not yet fallen into the CCP’s hands. As soon as Taiwan becomes a special administrative region like Hong Kong and Macau, the three and China will become “one system” — the CCP-controlled Chinese system. We must ask ourselves if we are willing to see this happen.
Wu Hui-lin is a researcher at the Chung-Hua Institution for Economic Research.
TRANSLATED BY DREW CAMERON
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