Poverty with High Economic Growth

Chan Ka-wai

(Ed. note: The author is the associate director of the Hong Kong Christian Industrial Committee [HKCIC].)

Poverty is the largest social problem in Hong Kong. According to research by the Hong Kong Social Security Society in 1999, the number of those who are considered poor in Hong Kong has reached more than one million people or almost 15 percent of the total population. Although it has been estimated that economic growth for 2000 reached 8 percent, unemployment is still high. Economic recovery from the Asian financial crisis has begun, but poverty has not been eased.

Uneven Distribution of Wealth

In his recent policy address in October 2000, Chief Executive Tung Chee-hwa simply blamed the problem of poverty on the Asian financial crisis. In fact, poverty emerged in the early 1990s, Hong Kong’s most affluent period when the local economy still enjoyed an economic growth rate of 5 percent every year. From 1994 to 1996, Hong Kong was even classified as the fourth wealthiest area in the world. In 1996 though, four independent studies pointed out that more than 600,000 people, or about 10 percent of the total population, was then living under the poverty line. Thus, Hong Kong has become richer and richer, but more and more of its people have become poorer and poorer. Poverty has accompanied high economic growth. It indicates that most of Hong Kong’s people cannot share the fruit of economic “success.”

This phenomenon, of course, is evidence that the gap between the rich and the poor has grown wider. The gini-coefficient that measures income distribution has reached 0.52 in Hong Kong, revealing a much more serious problem of uneven income distribution than that faced in most Latin American and African countries. Indeed, it is the greatest income discrepancy among developed countries in the world. According to the research in 1999 by the Hong Kong Social Security Society, during the last decade, the 20 percent of the population in the highest income brackets enjoyed real income growth of 28 percent, but the 20 percent of the population with the lowest incomes suffered a 28 percent drop in their real income. Presently, the 200,000 lowest income families can only take home HK$3,000 (US$385) per month on average, but the 200,000 highest income families receive, on average, HK$70,000 (US$8,974) every month—a difference in income of more than 23 times. Another way of explaining the income gap is that the 20 percent of the population with the most wealth enjoy 50 percent of the total income of Hong Kong while the 20 percent of the population earning the least have just 4.3 percent of the total income.

Monopolization in a ‘Free Economy’

Hong Kong is often praised as the freest economy in the world; but in the city’s economic environment, most resources are swallowed up by a small number of people. Currently, more than 90 percent of basic necessities in Hong Kong are controlled by less than 10 families and business groups. In the midst of “free” and “fair” market competition—Hong Kong’s economic mantra—small businesses are forced to fade away; meanwhile, most important businesses in Hong Kong, with the assistance of the government’s business-favorable policies, are monopolized by a handful of big business tycoons. This overconcentration of wealth in Hong Kong has even aroused international concern.

In September 2000, the European Parliament issued a strong statement that the fairness and transparency of the Hong Kong economy would be adversely damaged due to rapid monopolization in Hong Kong, and consequently, it advocated the introduction of anti-trust regulations.

High Unemployment

Hong Kong today has little industry. In the 1980s, most Hong Kong factories moved to mainland China because of its open-door policy. The manufacturing population in Hong Kong has dropped sharply as a result from 900,000 in 1984 to less than 200,000 now. The age of many of these factory workers is 40 or above. They have received little education and are unskilled workers. It is difficult for them to change to other types of jobs. Their future is, indeed, gloomy. According to government statistics in 1999, the unemployed population that is age 40 or above increased by more than four times in the 1990s, from 50,000 in 1991 to 220,000 in 1999. Since most middle-aged workers are the pillars of their families, once they are unemployed, their whole family will find it very difficult to balance their meager budgets.

High unemployment has forced many Hong Kong workers to accept harsher working conditions and lower pay. Government statistics show that the number of low-income workers with a monthly income of less than HK$3,000 (US$385) rose by 75 percent from 1997 to 1999, totaling 93,000 people. The government’s rejection of establishing a minimum wage makes the situation worse. It is expected that the wages of grassroots workers will decline even further.

Future Forecasts

The Hong Kong economy is being transformed into a knowledge-based economy; and as a result, it is anticipated that the numbers of the poor will increase. The rapid rise of the knowledge-based economy has led to a great demand for well-trained talent with specialized skills required for technological development and application. Only a small number of technological elites will benefit from this new development. Most people, especially low-income workers, do not have the necessary skills or the educational background to adapt to the new economy. Regrettably, there is no comprehensive social security system to support the poor, especially the elderly.

China will soon join the World Trade Organization (WTO)—a move supported by the Hong Kong government. However, it is a nightmare for many grassroots workers in Hong Kong. For instance, in the garment industry, the quota system imposed by the U.S. government will automatically stop five years after China’s entry into the WTO. According to the existing quota system, at least 50 percent of production of any garment products exported to the United States must be made in that area if the quota of the area has been filled. It forces many Hong Kong investors to keep a small part of their funds in Hong Kong, although there are always ways to bypass these regulations. However, once the system is abolished, it is expected that more factories will move to China and thus create more unemployment in Hong Kong.

Poverty in Hong Kong is closely related to the inner development of the Hong Kong economy. A free market economy without monitoring leads to monopolization. The development of the new knowledge-based economy and China’s entry into the WTO will intensify job insecurity among grassroots workers. Without a comprehensive social security system, the future of the poor in Hong Kong can be expected to become even more desperate and uncertain.