Hong Kong’s holding pattern


The combination of upcoming Legislative Council elections and signs of an economic slowdown are impeding business planning in Hong Kong, says Simeon Mellallieu 

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Corporations seeking to engage with Hong Kong’s new government are still effectively in a holding pattern. While taxes remain low and business is free in Hong Kong, there is a high degree of uncertainty in the business environment and this is affecting companies here just as it will be in Singapore or elsewhere.

The uncertainty stems from three principal issues: the fractious state of the global economy, the combined effects of China’s slowing growth and governmental transition, and a policy vacuum here ahead of the September 9 Legislative Council elections. In August financial figures revealed a slight contraction in the Hong Kong economy during the second quarter. So it is more important now than ever that business monitors the economic and trading environment and examines the policy priorities our new Chief Executive C Y Leung will develop, to ensure that business can continue to flourish.

Companies cannot be too complacent during these periods and this uncertainty is impacted by the ongoing uncertainty over the political and policy objectives of our new government. While many of the key ministerial portfolios are remaining with figures well known to the business community, we should remain alert to the fact that we do still have a new administration and that there are questions to be answered about what policy measures the government can introduce to ensure we remain on a sustainable growth path.

Sense of direction?

However, with elections to the Legislative Council due to take place in September and the Chief Executive’s annual policy address not occurring until January of next year, business is waiting for a clear sense of direction.  In September, once the elections are over, then we will be waiting to hear what C Y Leung’s agenda is and what he wants his ministers on the Executive Committee to do in practical policy terms. This will then feed into a more realistic policy address in January. The net effect of this is that almost a year will have gone by since CY Leung was elected to power, and people still lack certainty about his policies and his plans for Hong Kong.

At the moment, the Chief Executive’s popularity is at the lowest level we have seen since the office was established following the handover, so the only way has to be up for him personally. That said of the key reasons why C Y Leung’s government is having so much trouble is precisely because we are in a pre-election period – where anything and everything which he or his team does is being put under the microscope by their political opponents.

Any slight mishap is currently being targeted for political gain and this means that policy and the political cycle is currently a publicity vehicle for individual candidates. There is a lot of noise at the moment and business needs to look beyond this to assess what the new administration will actually seek to deliver once the Legislative Council elections have taken place.

At the moment, however, departments such as development and transportation are also suffering from this malaise and this is unlikely to change until after September 9.

We should also note the fact that this is a transition year in China, and that what happens over the border is increasingly important to affecting what happens here in Hong Kong. Speculation about the real state of the Chinese economy comes as the country enters a transition in its political leadership.

Economic headwinds

While the new Chinese government is committed to maintaining the status quo in many key areas, Hong Kong’s political leadership needs to be developing its own policies in order to ride the economic headwind. So for corporations and trade groups, engagement with the government here is now more important than ever.

Hong Kong’s constitution is designed to give the territory quasi-autonomy, but the government here has to answer to Beijing. The system, however, does recognise the uniqueness of different states and this is something which is acknowledged to restrict competition between different parts of the country becoming too intense.

For its part, Hong Kong keeps a close eye on developments in Shanghai, Shenzen or Singapore: but sometimes the territory can be too slow to react in defending its competitiveness and this is something we should be guarding against now.

A positive sign emerging from the new government is a desire to put in place mechanisms to make government faster acting and more responsive. While these measures are being held up by filibustering in the Legislative Council, this is a clear policy priority and this should mean government becomes both more effective and responsive in the future.

In Hong Kong the accessibility business enjoys to the political leadership is undoubtedly an advantage. But one of the problems with engaging government here is that there can be historically and characteristically cautious in its approach to setting and defining policy. For example, we have recently seen a new competition law being introduced. Ministers have wanted to introduce this for over a decade but were too cautious in framing the legislation. In the end they have passed a law which lacks teeth.

Too little too late?

It is strange that an environment as pro-business as Hong Kong took so long to introduce what is effectively now a watered down version of something which is seen as fundamental best practice for business elsewhere. This demonstrates both how cautious the government here is, and just how much influence business can have on policy formulation.

And while the media here does engage in self-censorship, the fact that a population of seven million people consumes 20 daily newspapers ranging from business broadsheets to tabloids only highlights why the government is inclined towards caution.

But to continue to compete Hong Kong needs to continue to be able to reinvent itself. There are several threats to Hong Kong’s role and position and to be able to counter these it must be able to adapt its position: to develop environmentally, sustainably and creatively. These factors will be important in Hong Kong winning jobs among major corporations who are looking increasingly to Asia as a base for their global operations.

Hong Kong is in the centre of the region, it offers a pro-business environment and there are a lots of tax benefits offered here, which benefit both business and its employees. Hong Kong needs to stress these factors when communicating with business, not just here but in China and globally.

Simeon Mellallieu is General Manager of Ketchum in Hong Kong

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