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Breakingviews - Hong Kong’s fate hangs on demographic fallacy

ATTENTION EDITORS - IMAGE 1 OF 22 OF PICTURE PACKAGE '7 BILLION, 7 STORIES - OVERCROWDED IN HONG KONG. SEARCH 'MONG KOK' FOR ALL IMAGES - People cross a street in Mong Kok district in Hong Kong, October 4, 2011. Mong Kok has the highest population density in the world, with 130,000 in one square kilometre. The world's population will reach seven billion on 31 October 2011, according to projections by the United Nations, which says this global milestone presents both an opportunity and a challenge for the planet. While more people are living longer and healthier lives, says the U.N., gaps between rich and poor are widening and more people than ever are vulnerable to food insecurity and water shortages. Picture taken October 4, 2011. REUTERS/Bobby Yip (CHINA - Tags: SOCIETY) - LM2E7AE147B01

HONG KONG (Reuters Breakingviews) - Hong Kong’s financial capital may be plentiful, but its stock of human capital is stressed. Despite the city’s rapidly aging society, leader Carrie Lam is pushing young residents to seek work across the border even as others move abroad. The government’s idea that mainland Chinese immigrants will more than fill the gap looks dangerously complacent.

Two in five residents were already considering emigration in 2019, per a survey by the Chinese University of Hong Kong. Amid a pandemic-induced recession in the $370 billion economy and a crackdown on the pro-democracy movement, the population shrank by 50,000 last year, only the second annual decline since the 1997 handover. The United Kingdom expects as many as 322,000 Hong Kongers to arrive over the next five years. Some $76 billion might leave, too, Bank of America analysts estimate. Sustained outflows would drain economic vitality and weaken the currency peg to the U.S. dollar.

Government statisticians expect Hong Kong’s population to grow by about 500,000 by 2041, peaking at 8.1 million. Like the rest of East Asia, however, the financial hub has a low fertility rate: in 2023, deaths will start rapidly outstripping births. What would help offset the trend are official forecasts indicating that immigration, mostly from mainland China, will keep bringing in around 40,000 people each year.

The projection is dubious. Mainland emigration to Hong Kong has been falling since 2016, partly because cities such as Shenzhen have become better places to live and work while Hong Kong has stagnated. Stratospheric living costs persist, deterring entrepreneurs and other young professionals. And now Beijing’s extraterritorial tax regime is a disincentive too. Hong Kongers pay only a 15% rate, but mainland migrants could be hit up for as much 45% on annual salaries over $148,000.

Lam herself makes a strong case for not coming. In a 2019 speech, she said Hong Kong’s pillar industries are losing their edge “and new industries have not emerged.” Her initiative to subsidise college graduates seeking work in mainland China, including the broad nearby region known as the Greater Bay Area, underscores her lack of confidence in the city’s ability to generate good jobs. Hong Kong’s economic plan relies on implausible demographics.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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