The Chief Executive of the largest property developer in the world presented their annual strategy review on Wednesday, October 16. This is a developer with a difference.
Not only does it have 1,073 square kilometres of land in one the world’s prime locations, with easy access to China, SE Asia and East Asia, it has freehold rights over the lot. It has a captive market of over 7 million people, many of the world’s largest corporations, and a few pink dolphins.
It has a marketing strategy that is second to none, perpetuating the myth that its tenants live in a free economy. Despite a recent hiccup in its public relations, it is on track to maintain its dominance in all important respects.
It has a cunning plan to maximise value from its already captive market and can therefore continue to reap monopolistic profits until 2047, when all bets are off.
Ray Kroc, who took McDonald’s from being a single hamburger stand to a household name, was once asked how things were in the hamburger business. He replied that he hadn’t a clue: McDonald’s was a real-estate company, and the burgers were there to make sure the tenants had the means to pay their rent.
The story is apocryphal: I haven’t been able to find that quote. However, it makes the point. The Hong Kong Government is first and foremost a property developer, and regards its job as being to ensure that people who live here have just enough money – and no more – to pay the rent.
The only entity in Hong Kong that owns land – with the arguable exception of St. John’s Cathedral (see here and here) – is the Hong Kong Government. All the rest of us, property developers, tycoons, and common folk, lease land from it.
As a result, the Hong Kong Government is not only the world’s largest property developer, but its most profitable. Its reserves amount to US$ 2 trillion. The only enterprise that even comes close is Aramco.
This, however, leaves the Government with a small political problem, which is how to distribute profits to its sole shareholder, the Central People’s Government (CPG)?
The mechanism is neither novel nor ingenious. Just as publicly-listed property developers everywhere feed extra cash into the controlling family’s own pockets by purchasing goods and services from private companies owned by the controlling family, the Hong Kong Government purchases goods and services for white-elephant infrastructure projects from State Owned Enterprises controlled by the CPG.
Job done. All the important stakeholders make money – tons of it – and everyone else muddles along. Until they don’t.
The world-view above is feudal. It treats people as chattel whose function is economic and whose value is utilitarian. We exist not to experience joy and sorrow, and far less to contribute to our fellow citizens and society, but to pay rent.
As such, the protests of the past few months are viewed from above as a slave revolt to be put down, while the view from below is that the system is inhumane.
That these two views are irreconcilable is not news. The government, after a quick burst of yellow-wash “dialogues,” has lost interest. The slaves are suffering from ennui and, in any case, there comes a point at which the rent has to be paid. So where will it end?
One of the core elements of the Hong Kong Government’s business model is that the population earns enough to pay rent. For most of Hong Kong’s post-war history, this was true in bursts. For the last decade, however, real income has stagnated and property has continued to spiral upwards in price.
C.Y. Leung seemed to recognise this, and put a damper on prices by making it more difficult for banks to lend, and for those with spare cash to buy second properties.
The current government, in its policy address, has eased these restrictions. However, that banks are permitted to lend recklessly does not mean they have to. Moreover, in a sector that is largely divided into Chinese and international sectors, many Chinese banks no longer have doors – which places limits on the business they can do – while international ones have shareholders who may hesitate to see the banks lend money in a politically volatile situation.
No amount of financial chicanery, however, can alter the fact that, in an economy with a GDP of about HK$500,000 per person, in which a hovel can cost over HK$10 million, many people simply cannot afford the mortgage.
This perhaps is why, while C.Y. Leung’s government condemned only 50% of the population to live in public housing, the current government hopes to increase that proportion to 70% – a proportion to which no other wealthy economy even comes close (or, from the HK Government’s view, aspires?)
The worst affected are the young. For many Hong Kong millennials – the vast majority of whom have never worn a respirator or thrown a Molotov cocktail in anger – no amount of hard work or merit will be rewarded with a home of their own.
Many, however, can afford a one-way ticket.
And this opens the door on a deeper problem, and something that cuts close to the bone on both sides. To the Hong Kong “Government,” it matters not one jot who its seven million tenants are. For every tenant who flies out, there are 200 in the PRC waiting to come.
And, those Hongkongers too poor even to fly out – mostly the elderly – are invited to leave their home, often the land of their birth, to expire out of sight in the Greater Bay Area.
From the perspective of the world’s biggest property developer, this is genius. It clears out tenants who can no longer afford to pay rent, and who won’t make much fuss as they’ll be dead soon anyway, and makes space for the new and well-healed. In most other discourses, this would be described as forced migration, if not a pogrom.
But this could be the wedge that opens a discussion. The PRC has shown itself to be extraordinarily sensitive to the views of both Overseas Chinese (as an ethnic group) and Chinese overseas (as an itinerant group).
The only way to sustain the Hong Kong “Government’s” business model is the forced migration of millions of people out of Hong Kong. To see those people protest on TV is one thing; to have them show up, disgruntled and angry, on your own doorstep is another.
The Basic Law can be read as entrenching the Hong Kong Government as a property developer, or as protecting a free market economy. While many will protest that Heritage Foundation and other unquestioning fools appraise Hong Kong’s economy as being the world’s most free, the property market is a stitch-up, and the Hong Kong “Government” is at its core. Change that, while leaving the rest as it is, and there may just be a glimmer of light.
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