Hong Kong is the most free economy in the world—in theory. In reality, most residents struggle to get by, and have little say in their political or economic future.
By Nathaniel Taplin Updated Aug. 8, 2019 5:07 am ET Hong Kong is in the midst of its worst political violence since the semiautonomous city’s handover to China in 1997. Defusing the crisis—and maintaining its status as a global financial powerhouse and conduit for capital into China—requires urgent action not only on grievances including police accountability and stalled electoral reforms but also on deep, festering problems with the city’s economic model.
Most of Hong Kong’s most urgent economic problems relate to land. Median income growth has been modest over the past decade, but residential property prices nearly doubled in real terms from 2010 to 2018, according to the Bank for International Settlements. That far outpaces increases even in other notoriously bubbly markets such as Canada, where prices are up about 40%. Hong Kongers live in tinier apartments and pay more for them than nearly anywhere else.
Hong Kong’s low tax rate and big fiscal surplus—the government over the past three years earned on average close to 20% more than it spent—is in fact funded largely by government land sales, which were 27% of total revenues in fiscal year 2017/2018. To make matters worse, the proceeds of land sales go into the Capital Works Reserve Fund, which is slated for infrastructure development. Hong Kong already has exemplary infrastructure.
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