hong kong: The colony tenses for a future perfect.

hong kong: The colony tenses for a future perfect. - So far, China's flirtation with capitalism has brought spectacular results. Nick Hasell encounters a vigour in booming Hong Kong that seems unlikely to deter it from continuing with such a promising ro

Last Updated: 31 Aug 2010

So far, China's flirtation with capitalism has brought spectacular results. Nick Hasell encounters a vigour in booming Hong Kong that seems unlikely to deter it from continuing with such a promising romance.

Ever since the announcement in 1984 of the return of Hong Kong to China, the capital's grander hotels have been taking bookings for what some have termed the Great Denouement - otherwise known as the night of Monday 30 June, 1997. Already Kowloon's Peninsular Hotel, to many the epitome of 1920s colonial splendour, is fully booked. Across the harbour in Causeway Bay all 913 rooms of The Excelsior, at a suitably flamboyant HK$1,997 each, are similarly taken. Further west, in Central, their newer but no less opulent rivals are reporting reservations in their hundreds.

The ironies in all this are multitude, not least the fact of Hong Kong brazenly turning what pessimists once saw as its demise into yet another source of revenue. While hoteliers are quick to welcome this burgeoning trade, some are clearly bemused at the prospect. "I don't know quite what people expect to happen," observes one laconically. Indeed it is here you suspect that the tourist's sense of drama and the resident's unerring realpolitik are somewhat at odds.

All the signs are that the latter, long since tired of doomsday theorising, have now set their sights well beyond 1997. Certainly those visitors who go in search of a wake or, for that matter, another Black Monday, might well feel cheated. Hong Kong, from its raw noisy street life to its increasingly vertiginous walls of glass and steel, shows few signs of expiring.

It is a vitality displayed elsewhere in figures. After several rather lacklustre years, 1991 saw GDP grow by some 4% and it looks this year to be heading for a further 5% rise. Investment in the local economy registered a 10% increase, within which spending on plant and machinery grew by 18%; re-exports rose by 26%, while trade with the Asia Pacific region as a whole grew by 23%. Perhaps most startling to Western eyes, unemployment continues to hover below 2%.

The only apparent blemish within this catalogue of economic virtue is the persistently high level of inflation, though this too has improved, dropping from last year's high of 13.9% to settle at around 10%. Much of this, explains Government economist Ms Elley Mao, is domestically generated, stemming from the economy's profound structural changes and the continued growth in services. At the same time Mao points to the positive effect of a package of counter-inflationary measures introduced last year, in particular those aimed at cooling down the territory's overheated labour and property markets. These have ranged from the extension of a scheme to selectively import 25,000 skilled workers, to a series of restrictions on the mass purchase of housing, the single purpose of which is to curb the territory's speculative excesses.

Evidence of the latter is most readily found in Hong Kong's vast swathes of unoccupied flats. With real interest rates frequently negative and residential property prices last year rising by an average of 60% (in one area, Tuen Mun, reaching a record 93%), speculators have increasingly moved in and have bought up large numbers of flats nearing completion - to such an extent that around one-third of all new flats put on the market last year are currently empty. Yet whatever the success of the Government's measures, the overriding impression is that much of Hong kong is property-obsessed.

Like as not the average resident can, when challenged, quantify his domestic floorspace down to the nearest square foot. The same symptoms are apparent in Sunday's edition of The South Chin Morning Post which features an area-by-area "Your Home Index". Here concerned property owners can consult a graph and check on their dwelling's no-doubt spiralling value. Taken on these terms Hong Kong's allure becomes that of one glowing expanse of tightly packed real estate.

Activity in Hong Kong's other great arena of speculation (aside from the Happy Valley racecourse), has been equally frenetic. Last year the stockmarket reached new highs, outperforming not only its neighbouring Asian bourses but also every other major world market. By the year's close the Hang Seng index had risen by 42%. A further 18% rise so far this year is thought to herald a similarly robust performance in the months ahead.

The impetus for these gains came for the most part in July when months of political wrangling were ended with the announcement of the Sino-British agreement on the new port and airport scheme. The effect, notes James Smith-Laittan of the British Trade Commission, was to "single-handedly breathe new life into the economy". What's more, with the project's expenditure conservatively estimated at some £11 billion, it has created something of a bonanza for Hong Kong's construction sector.

The sheer scale of the combined undertaking has understandably attracted all manner of superlatives, not least in its plans for the creation of a 1,248-hectare airport at Chep Lap Kok from an island originally one-third that size. Currently the entire site is being levelled by swarms of earth movers and is surrounded by a vast fleet of dredgers. The number and magnitude of the other related projects is virtually without precedent. These include: a new linear city along the northern shore of Lantau Island, eventually intended to house some 200,000 people; a fixed crossing with the mainland consisting of a 2.2 km suspension bridge, one of the largest ever built; a third cross-harbour tunnel and the reclamation of 330 hectares of land along the existing West Kowloon waterfront. After the completion of a dual three-lane highway and high-speed rail link, the entire 35 km stretch between the airport and central Hong Kong will comprise one continuous expressway. Encouragingly for British contractors, the net for tenders - so far confined to the airport project - has been cast well beyond the Asia Pacific. Already British companies, either individually or as members of consortia, have come away with several prestigious contracts - altogether an impressive 80% of the projects so far announced. These range from a £1.4-million order for temporary works buildings (awarded to Bristol-based engineers Tilden Industries) to the £40-million contract for the design of the passenger terminal (to BAA and Foster Associates, as part of the Mott consortium). The latter, however, has provoked controversy ever since it emerged that the winning bid was in fact the highest of those shortlisted. Beijing has since seized upon the fact as evidence of what it has long since suspected: namely that the Hong Kong Government would use the project to award lucrative contracts to British companies (and so, goes the theory, repatriate large reserves of capital). Though to some this intervention has come as a cause for concern, for others it is the inevitable price of China having traded its consent to the project for a greater say in its running.

Within this increasingly politicised environment, the role of the British Trade Commission has been to play industrial cupid, matching the expertise of British companies with a project's specific requirements. As the deadline for the remaining tenders nears, trade counsellor Smith-Laittan is further optimistic that British civil engineers, having honed their skills on the Channel Tunnel, will figure prominently in a project that is every bit as Herculean. Companies such as Trafalgar House, Balfour Beatty, Costain, AMEC and Mowlem are among those who have already submitted bids as part of joint ventures.

The planned expansion of the container facilities at Kwai Chung, already one of the largest in the world, is no less dramatic. Prompted by a boom in container traffic, currently growing at some 14% per annum, the port authorities have embarked on a scheme to add two more terminals to the existing seven. Unlike the airport project, 80% of the finance is expected to come from the private sector. Again the level of British involvement has been high. In the case of the eighth terminal, this has come from Trafalgar House's 50% stake in Gammon Construction, the leading member in a consortium that has secured the £195 million development contract. The rights for the ninth will be awarded later this year, while there are provisional plans for a further five terminals to be phased in between 1997 and 2011.

Yet Hong Kong is no stranger to re-shaping itself in such a drastic fashion. Interestingly, as a result of successive reclamation schemes, in 1997, Britain will hand back to China some 25 more square miles than were taken over in 1841. Part of this includes the existing airport at Kai Tak which, when built in 1956 by French engineers, required the levelling of a low range of hills and the shifting of some 11 million tons of earth. Appropriately when Kai Tak closes in 1997, the long-standing 12-storey height restriction imposed on Kowloon will be lifted. The way is then clear for the wholesale re-zoning of Kowloon's southern peninsula and, with it, yet another spate of construction. If all goes to plan the end-result will be a lofty waterfront every bit as spectacular as Hong Kong's.

The ever-shifting topography of the island has become something of a cliche, the numerous changes offering a constant challenge to the infrequent visitor. The changes in skyline seen over the last few years can most readily be laid at the door of the service sector, the latter having grown to the extent that it now accounts for around 70% of total GDP. As finance, retailing and business services have grown, entire new districts have sprung up to accommodate them. In Central three new five-star hotels, the Conrad, Marriott and Island Shangri-La, tower over Pacific Place, a lavish underground shopping complex. The latter hotel's attractions include a massive atrium, a calculated riposte to Hong Kong's ubiquitous feeling of compression. At Wan Chai, formerly Hong Kong's red light district, the waterfront has been theatrically transformed since the opening three years ago of a HK$2.8-billion Convention and Exhibition Centre. The effect of its location, together with that of its associated hotels - the Grand Hyatt, a superb re-creation of 30s' splendour, and New World Harbour View - has been to extend the city's axis steadily eastwards. Further evidence of the shift is provided by the unfinished monolith of Central Plaza which, with the city's typical bravado, declares itself Asia's tallest building. Soon Hong Kong will add yet another superlative to an already lengthy list.

The upshot of such developments has been the territory's ability to lure an increasing number of visitors, a sizeable proportion of whom are business travellers. For these Hong Kong offers some 101 hotels, a number of which must rank (and indeed are regularly voted) among the best in the world. The Convention Centre has also played its part, which, together with the Hong Kong Coliseum, provides conference space for over 20,000 delegates. Last year the overall number of conference goers increased by 71%, with those attending corporate meetings up by 62%. Amy Chan, chief executive of the Tourist Association's Convention and Incentive Travel Bureau, outlines the city's attractions in terms of its location within the Asia Pacific region, the operation of a set of sophisticated commercial ethics, a lack of import/export restrictions, a favourable climate and an exchange rate stabilised by its link with the US dollar. In addition, she points out that many multinationals are already headquartered in Hong Kong. Certainly this confidence is borne out in the bureau's list of forthcoming events, a document that sets out an unbroken roster of conferences, conventions and trade fairs stretching up to December 2000 (and doubtless well beyond). In view of the fact that business visitors spent an average of HK$18,740 each last year, three times as much as the average tourist, every increase in their number is further to be welcomed.

All this is, of course, good news for airlines serving the territory, as is the increased capacity and handling capabilities of Chep Lap Kok. Growth in air traffic within the Asia Pacific region in the 1990s is currently forecast at some 7%, as against 5.9% for intra-European trade and 4.9% on North Atlantic routes.

Hong Kong's de facto flag-carrier, Cathay Pacific Airways, has perhaps more to gain than most from this growth, an opportunity it hopes to maximise through a commitment to new aircraft and a further expansion of its network. While its sister carrier, Dragonair, is left to serve China and smaller points in the Asia Pacific, Cathay continues to utilise its wide-bodied fleet in the fiercely competitive long-haul market to the Far East. As far as its service to Britain is concerned, the move of its principal operations to Heathrow in May of last year, explains marketing director Rowland Cobbald, "helped us to hold on to our share of the route".

While the Gulf War inevitably took its toll on passenger numbers, the effect, says Cobbald, "was shortlived". Accordingly Cathay came back in the latter half of the year with a markedly improved set of results. In addition, it has recently attempted to consolidate its share of the business market through a £10.5-million re-launch of its first class service, together with the opening of an impressive new £3.5-million lounge at Kai Tak.

Certainly the higher service standards of the latter are a fitting introduction to a city renowned for the outstanding quality of its hotels, restaurants and business facilities.

To a large degree Hong Kong's booming service sector and wider structural changes have been led by economic reforms elsewhere; namely the semi-capitalism pursued across the border in the People's Republic of China. Since the latter's introduction of an "Open Door" policy in 1979, Hong Kong's manufacturers have crossed over the border in droves, taking advantage of the low wage rates, cheap land and tax concessions offered by four Special Economic Zones (SEZ's).

Today around 16,000 Hong Kong-based companies are thought to employ some 2.7 million workers in the neighbouring province of Guangdong, producing the anomaly whereby the territory employs three times as many industrial workers outside its borders as within.

The territory also accounts for 80% of the latter's foreign investment, where in some areas the Chinese yuan has been almost entirely supplanted by the mighty Hong Kong dollar. Back in Hong Kong itself the workforce has been left increasingly free to move into higher value-added activities. It is what Francis Ho of the Hong Kong Department of Industry describes as "a classic case of the economic division of labour". Other less politic observers have dubbed it a "reverse takeover".

Take for example the case of Qualidux, a family-owned plastics manufacturer. Less than a decade ago this was a medium-sized outfit employing 800 workers and located entirely in Wong Chuk Hang, an industrial suburb a few miles south of central Hong Kong. Target sales turnover for its output of plastic toys and domestic products was HK$50 million. Today only 150 employees can be found at its slightly dilapidated headquarters, where now the concern is purely with administration and product design. To locate the rest of the workforce you need travel to south China, to Shenzhen and Zhuhai. At the former site Qualidux have established a two-phase factory unit spanning 30,000 square metres, adjacent to which is an equally vast residential development. Here the workforce numbers some 5,500. Sales turnover, meanwhile, is now targeted at HK$400 million.

MD Dennis Ting claims that Qualidux's migration is similarly echoed by 95% of Hong Kong's toy producers. "If you don't move into China it's almost impossible to survive," he explains. The prime motivation is labour costs, with the monthly pay of a factory worker in the Shenzhen SEZ being, on Ting's estimation, approximately 15% of their Hong Kong counterpart (around HK$4,000).

The one major drawback however is the relative lack of infrastructure. Given a telephone system that is for the most part primitive and an electricity supply that fluctuates wildly, the most obvious solution, in Ting's words, is "to do it yourself". Accordingly Qualidux's adventures in China have entailed the outlay of some HK$10 million in the necessary power generators and telephone network.

Yet if Guangdong is anything to go by, China will need little co-option into capitalism. Thus far it is a flirtation that has brought spectacular results.

Last year, for instance, China's economic growth was put at some 7%; that of Guangdong touched 13.5%. Meanwhile industrial output for the same period rose 27%. The southern city of Shenzhen, which was formerly a rather drab border town, now boasts a thriving stock exchange and to all appearances is, as one observer put it, "more Hong Kong than Hong Kong".

Last month the Shenzhen SEZ received one of its clearest endorsements yet when the Chinese authorities announced that the zone is to be increased to six times its present area. Already some forward-thinking foreign investors are looking beyond Guangdong's role as a supplier of cheap labour and eyeing its potential as a consumer market. Where does all this leave Hong Kong? In short, as the gateway to one of the world's fastest-growing economies. Should its inheritors be so churlish, come 30 June 2047, Hong Kong's particular brand of freewheeling capitalism could, of course, be abolished. It is unlikely that even the most doctrinaire regime would deprive itself of such a lucrative asset. Hong Kong will most likely be left to carry on doing what it does best: making money - lots of it.

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