Some thoughts about Hong Kong’s recent economic

development

28 November 201228 November 2012

KC KwokKC KwokHonorary Senior Research FellowHonorary Senior Research Fellow

School of Economics & FinanceSchool of Economics & FinanceUniversity of Hong KongUniversity of Hong Kong

Agenda

Major changes around us -unprecedented challengesunprecedented opportunities

The HK economy – structural changes; “ 深层次矛盾” A brief discussion of

some important financial market developmentssome economic concepts and thoughts

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新世纪头十年，是世界政治经济格局大调整、大变革的十年，是中国工业化、城镇化快速发展的十年，也是我们全面推进改革开放和现代化建设取得辉煌成就的十年。这十年，中国经济年均增长 10.5% ，国内生产总值由世界第六位上升到第二位，对外贸易总额由第七位上升到第二位 ; 产业结构优化升级，农业基础不断加强，中西部地区发展加快，各具特色的区域发展格局初步形成 ; 各项社会事业蓬勃发展，城乡居民收入大幅提高。中国经济实力、综合国力、人民生活水平迈上新台阶，国家面貌发生了翻天覆地的变化。

中国国务院总理温家宝 , 2011 年 9 月 14日

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Source: Economist4

The Global Financial Crisis

Source: FinancialCrisis.org5

资料来源 : www.money.cnn.com

“As long as the music is playing, you’ve got to get up and dance …We’re still dancing.”

Chuck Prince, former Citigroup Chief Executive, July 2007.

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US Property Price Index, 2001-2012 August

Source : MIT & Standard & Poor’s

… My dad died when I was young. He was a good and decent man. I still remember a couple of things he would say that have really stuck with me. ‘Son you are either part of the problem or part of the solution.’ Regrettably, President Obama has become part of the problem,...and Mitt Romney is the solution.The other thing my dad would say is that every generation of Americans leaves their children better off. That's the American legacy.Sadly, for the first time in our history, we are on a path which will undo that legacy. …

Paul Ryan, 11 Aug, 2012.

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Source: Google9

Source: European Trade Union Confederation website10

“OCCUPY WALL STREET”

Source: Wall Street Journal11

Will China escape the middle-income trap?

Source: “China 2030”12

China – Exports and Imports value index (2008=100)

Source : CEIC13

China – FDI Inflows and Outflows

Source : UNCTAD, “World Investment Report, 2012”14

*People 25 Years and Over ; ( ) People 18 Years and Over Source: China Statistical Yearbook 2011 & U.S. Census Bureau

  China US

(mn)

(Junior College & above) (College, Degree or Above)*

1964 2.89 18.43 

1982 6.20 44.74 

1990 16.12  61.37

2000 45.71 89.29 (101.54)

2010 119.64 111.76 (126.63)

Number of people with higher education

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Source : The Daily Beast16

Paul Romer’s New Growth Theory

"Old growth theory says we have to decide how to allocate scarce resources among alternative uses."

"New growth theory says, 'Bullxxxx!' We're in this world, it's got some objects, sure, but it's got these ideas, too, and all that stuff about scarcity and price systems is just wrong.'“

“People are reasonably good at forming estimates based on addition, but for operations such as compounding that depend on repeated multiplication, we systematically underestimate how fast things grow.”

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Size Matters

China is a world on its own; momentum built up in a continental size economy is not easy to reverse

The rolling stages of development

The resilience to downturns

The speed, non-linearity and complexities of development

The attractions of sizeable markets to investors - the opportunities for scaling up, agglomeration and economies of scale; and the opportunities and potentials for innovation and ideas

China and the Rest of the World have to learn how to live with each other

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Source: OECD Development Centre19

Source: OECD Development Centre20

GDP per Capita

21 Source : CEIC

Impact of Mainland’s development on HK The rapid growth & evolution of the Mainland

dimension in HK’s economy & businesses The Mainland factor in making HK more global Growth in Mainland-related demand on HK’s

producer services consumer goods & services; healthy, education,

social services fixed assets

Rapid structural transformation of the HK economy winners & losers; income disparity competition & cooperation

Cross boundary issues in public policy

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Hong Kong searching for its role

Supporting China’s economic integration with the world financial services; trade; investment; “going out”

Headquarters economy From helping China’s hardware development to

promoting China’s soft power ? social services, rule of law, anti-corruption &

open government, governance, NGOs, etc. the overseas Chinese network nurturing mutual understanding & cooperation

between China & the rest of the world

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HK’s 4 “pillar industries”

Source: C&SD24

Making HK’s financial centre international -- Equity funds raised through HKEx

Source: CEIC & HKEx25

Hong Kong : RMB Deposits

Source: HKMA26

Source: World Economic Forum website27

Source: InvestHK, Regional Headquarters Survey 28

Source: InvestHK, Regional Headquarters Survey 29

Hong Kong dealing with some of its “deep-rooted contradictions”

Inflation & asset price bubbles Income disparity Coping with demands from and integration

with the Mainland Internal restructuring - rising sectors vs

declining sectors Conservation vs development Values and expectations of the younger

generations vs traditional beliefs Ageing & population policy

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Property Price, Rental and Nominal GDP

Source: CEIC31

Age Profile of HK’s Population

Source : C&SD32

Population Aged 15 and Over by Age Group and Educational Attainment, 1996

Source : C&SD

19961996

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20112011

Population Aged 15 and Over by Age Group and Educational Attainment, 2011

Source : C&SD34

WORLD DEBT GUIDE

Source: Economist35

Source: Economist36

Source: Economist37

Source: Economist38

Yield on US 10-year treasuries

Source: Wall Street Journal website39

Source: Andrew Filardo & James Yetman, BIS40

M2 – EU, USA and China

Source : CEIC41

中国 : 贷款与M2 对 GDP 比例 , 1978 – 2011

资料来源 :CEIC 及中华人民共和国 2011 年国民经济和社会发展统计公报42

China & Hong Kong – M2

Source : CEIC43

Some conceptual and theoretical issues

“The Great Moderation”, “Financial Triumphalism”& the “Minsky moment”

“irrational exuberance” – what should monetary policy target?

George Soros – theory of reflexivity & “the Super Bubble”

Reforming financial market regulations and supervision

Rethinking the “Washington Consensus”, capitalism, and the welfare state?

Debates about “austerity”, tax cuts, and “QE”

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资料来源 : YouTube

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资料来源 : YouTube46

资料来源 : YouTube47

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