Hong Kong Middle Class Bitter as Tycoons Choose Leaders

Photographer: Scott Eells/Bloomberg

People look at the illuminated night skyline in Hong Kong, China. Close

People look at the illuminated night skyline in Hong Kong, China.

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Photographer: Scott Eells/Bloomberg

People look at the illuminated night skyline in Hong Kong, China.

Stephen Chung gave up on buying an apartment in Hong Kong after realizing it would take him 10 years to save the $115,000 deposit for a two-bedroom box in the northern part of the former British colony. He isn’t expecting any help from the city’s next leader.

“In this place there are only two kinds of people -- those who can afford to buy a home and all the good stuff, and those who can’t,” said Chung, 25, who quit his advertising job last year to start a tourism firm. “There’s no more middle class.”

Chung’s bitterness reflects a broader disillusionment with the city’s leadership ahead of a March 25 election, which will see a 1,193-member committee of billionaires, businessmen, lawmakers and academics choose a new chief executive for the next five years. While China’s tacit approval is seen as necessary to win, the campaign -- with two candidates dogged by personal scandal and conflict of interest allegations -- has exacerbated public discontent over collusion between business and politics and fueled accusations that leaders are out of touch with regular people.

The new chief executive will inherit a city with the biggest wealth gap in Asia, which has been spawned by an influx of money from mainland China and eight years of rising property prices that have made Hong Kong the world’s most expensive place to buy a home. At stake is the city’s ability to maintain its status as the best place to do business and as a gateway to the world’s fastest-growing region, as the new leader tries to balance China’s demands for stability with the aspirations of Hong Kong’s 7.1 million residents.

‘Lack of Accountability’

“The lack of accountability in Hong Kong probably increases the disaffection of the electorate,” said Razeen Sally, visiting associate professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore. “Beijing should be pragmatic enough to take account of the concerns of the Hong Kong people, which are real and are voiced regularly, if it doesn’t want to incite some kind of backlash.”

While the economy has grown 62 percent since the handover of British rule in 1997, median monthly household income remained unchanged at HK$20,000 ($2,576). London-based Savills Plc (SVS) said the price of an apartment in Hong Kong is almost two times higher than in London, which placed second on the property broker’s list of most expensive places to buy a home.

Policeman’s Son

Even though most Hong Kong residents won’t get to choose the next leader until universal suffrage is introduced in 2017, the candidates have directed their campaign messages at the issues that most irk them. Henry Tang, the city’s former chief secretary, said in a March 8 interview he will expand public housing by a further 60 percent in five years, spend HK$6 billion more annually on schools, and create 100,000 jobs for the middle class if he wins.

“The middle class has been squeezed,” said Tang, 59. “Every government in the western world is reexamining its role in the market place. I would say government can be more proactive.”

The election pits Tang, the son of a textile tycoon, against Leung Chun-ying, the son of a policeman and the popular choice in opinion polls. Democratic Party lawmaker Albert Ho is also running.

The University of Hong Kong is running an alternative poll, allowing all residents to cast votes in a mock election by smartphone, at polling booths and online. The project’s computer server crashed at around 7 a.m. today in a second suspected cyber-attack, said Joyce Chan, a research executive at the university project. Two days ago, the site experienced a million hits a second, overloading the computer system.

Polling Booths

“We are encouraging people to use the polling booths, which are not affected,” Chan said.

Leung, 57, was backed by 43 percent of respondents in a poll of 957 people published March 16 by the Chinese University of Hong Kong. Tang got 18 percent support. Two-thirds of the respondents in a Feb. 23 poll published by the South China Morning Post said Tang should quit the race after he admitted to knowledge of a basement built illegally by his wife.

“The election isn’t really about public opinion,” said James To, a Democratic Party lawmaker. “It’s about what the establishment want. But Henry is still wary about how the public view him because, if he’s elected, it’ll be difficult to govern with such low popularity.”

China’s Leadership Woes

China, which is undergoing its own leadership transition later this year, hasn’t formally indicated its preference. Its rulers, who have their own leadership troubles with the ouster of Chongqing party chief Bo Xilai last week, have signaled concern over the prospect of growing unrest in Hong Kong.

“We have to have the confidence that Hong Kong people can manage Hong Kong well,” Chinese Premier Wen Jiabao said at a March 14 press conference. “Hong Kong must continue to work hard, to develop the economy, improve people’s lives, advance democracy and maintain social harmony.”

Thousands took to the streets March 3 to demand that current Chief Executive Donald Tsang resign after it emerged he had taken trips on yachts and planes of his tycoon friends. Former Chief Executive Tung Chee-hwa resigned after half a million people protested in 2003 against a proposed anti- subversion law they feared would curtail personal freedoms.

‘Slow Us Down’

“All the things that have been happening over the last few weeks will unfortunately slow us down in tackling the real dividing issues,” said Bernard Chan, President of Hong Kong- based Asia Financial Holdings Ltd. (662) and a member of the election committee. “Whoever wins this Sunday will have a very difficult time even getting started.”

Leung may have won the backing of China. Officials at Beijing’s Liaison Office in Hong Kong have been calling committee members to encourage them to vote for Leung, the city’s public radio station RTHK reported March 20, citing James Tien, the honorary chairman of the Liberal Party. Liu Yandong, a member of China’s Politburo, has met Hong Kong businessmen to persuade them to vote for Leung, the local Sing Tao Daily reported the same day, without citing anyone.

Electric Cars

Leung has pledged to build more public housing, increase land supply and provide tax-breaks to help residents buy their own homes. He also promised to speed up public projects like expanding the city railway system and encourage the use of electric and hybrid cars.

Leung has not been free of scandal. The city’s Legislative Council is investigating claims he had a conflict of interest in helping select an arts hub in the city in 2002. Leung, a former adviser to chief executives Tsang and Tung, has denied any wrongdoing.

The city’s next leader, who takes office July 1, will have to navigate growing tensions between Hong Kong residents and mainland Chinese. Tour operator Chung embodies the ambivalence of his fellow Hong Kongers: While some of the customers who buy his Secret Hong Kong packages are mainland Chinese, he blames the influx of money from the mainland for pushing up property prices and forcing him to put his plan to buy a 600-square-foot apartment on hold.

‘Not Healthy’

“Our whole economy relies on Chinese tourists,” said Chung, whose company organizes tours in Hong Kong. “This is not healthy.”

The tensions have spilled into the open. An advertisement placed Feb. 1 in the local Apple Daily newspaper, controlled by Hong Kong media tycoon Jimmy Lai, portrayed mainland Chinese mothers who entered Hong Kong to give birth in local hospitals as locusts for sucking up the city’s resources. The number of births in the city almost doubled in the decade to 2010, thanks to 232,536 babies born to mainland mothers, according to the city’s Census and Statistics Department.

Kong Qingdong, a professor at Peking University, called Hong Kong residents “dogs” on a television talk-show, in reference to the city’s colonial history and the use of Cantonese, instead of Mandarin, by its residents.

The economic pressures buffeting Hong Kong’s leaders echo those across the region, where voters elected an opposition party in Thailand that gets its support from the nation’s poor and in Singapore where the ruling party last year won its smallest majority since independence in 1965.

Dollar Peg

The discontent in Hong Kong “fits a broader pattern in the region,” said the National University of Singapore’s Sally. “The smaller economies that are highly dependent on the world economy, those with very high trade to GDP ratios, are seeing much wider income gaps in the last 10 to 15 years or so. Globalization has impacted them much harder than elsewhere.”

Hong Kong has limited tools to rein in inflation, which averaged 5.3 percent last year and has hurt the poor. With the local currency pegged to the dollar, the city takes its cue on monetary policy from the U.S. Federal Reserve, which has kept interest rates at close to zero since December 2008. Tang said in the March 8 interview that it wasn’t in the interest of Hong Kong to depeg from the U.S. currency.

Closer ties with China have been a mainstay of Tsang’s policies, as he pushed for a 72.9 billion yuan ($11.5 billion) bridge to the mainland and Macau, and encouraged Hong Kong to become the country’s offshore yuan center. Still, the city’s economy was surpassed in size last year for a second year by Singapore, which competes with Hong Kong for financial talent.

Pollution Levels

A deterrent for executives considering a move to Hong Kong is the city’s pollution levels, which causes more than 3,000 premature deaths a year, according to Civic Exchange. The research group said in a statement on Jan. 12 that 49.26 million doctor visits “can be attributed to Hong Kong’s persistently poor air quality” during Tsang’s term of office from 2005.

Hong Kong’s low corporate tax rate of 16.5 percent, compared with the U.S.’s 35 percent, is one of the sweeteners that have attracted international firms and helped ensure that 15 years after its return to China the city has retained its status as a financial hub. HSBC Holdings Plc (HSBA) is one of the financial titans listed on its stock exchange and Gap Inc. (GPS) is among global retail outlets attracted by Chinese visitors to Hong Kong.

Best for Business

Data compiled by Bloomberg show Hong Kong’s free-market policies and low corporate taxes make it the best place to do business. The city, which serves as the main gateway to China, placed top in the Bloomberg Rankings index based on six factors, including the degree of economic integration and the costs of setting up business. The Netherlands, the U.S., the U.K. and Australia occupied the next four slots.

“With Hong Kong, compared to Singapore, the connection with China is much closer,” said Richard Vuylsteke, president of the American Chamber of Commerce in Hong Kong. “Hong Kong has evolved from the gateway to China to the gateway out of China for Chinese companies and their investment. Western companies are using it as a base, so are Chinese companies.”

Chung isn’t convinced of the advantages of growing mainland influence on Hong Kong’s economy. It doesn’t matter who gets elected because not much will change, he said.

“The problem lies in the system, the system that relies too much on the mainland,” he said.

To contact the reporter on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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