Hong Kong, a city healing from the wounds of social unrest, must take bold action to tackle its deep-rooted social problems. Improving income distribution should be considered when the city plays its part in the execution of the 14th Five-Year Plan (2021-25) for national development.
Hong Kong has long been lauded as one of the most business-friendly cities, having operated a simple and low tax system. Nonetheless, the lower revenue that the tax system generates, the lower public resources the government has at its disposal. As a result, the special administrative region government is incapable of spending sufficiently on its social security system to ensure the basic living standard of its low-income community. The wealth gap between the rich and the poor is widening.
The deteriorating wealth disparities leave Hong Kong stranded in the biggest drawback of capitalism. Hong Kong’s Gini coefficient, the most-widely-used indicator of wealth gap, rose from 0.476 in 1991 to 0.537 in 2017, the highest among the developed Asian economies including Singapore, Japan and South Korea. Not only does the poor population keep rising, some middle-class families are slipping into the poverty abyss, gradually becoming low-income households.
To make things worse, as capital is increasingly accumulated in the hands of a small portion of the population, the city’s home prices have skyrocketed 3.8 times since 1999 because of shortage and speculative activities. While a handful of landlords and speculators are bragging about their success in the real estate market, many ordinary people are struggling either to buy a shoebox-sized flat or cope with a prohibitive rent bill. This has been one of the factors contributing to youth discontent, as well as the social unrest in 2019.
While the social unrest has died down with the promulgation of the National Security Law, common prosperity for Hong Kong society should be a major goal for the SAR government in formulating future policies for the sake of social harmony and stability. In this regard, the Chinese mainland has set an example.
Recently, President Xi Jinping has stressed the importance of achieving common prosperity for Chinese people. To that end, the idea of “third distribution” has been raised. Aside from the “first distribution”, which allows the market to decide the wealth of people, and the “second distribution” or redistribution, which hinges on the taxation system and government expenses to reallocate resources for the well-being of the disadvantaged and the growth of the economy, the central government now encourages giant enterprises and rich entrepreneurs to take up greater social responsibility through charity, a process called the “third distribution”. Internet giant Tencent has responded to this initiative by launching a 50 billion yuan ($7.7 billion) “common prosperity special project”. Some other big mainland companies are reportedly considering following suit.
The third distribution, together with a better second distribution by introducing more progressive and capital-oriented taxes, could limit the size of the upper class and the lower class. The middle class could then be expanded and become the pillar of society, facilitating a more stable and harmonious society.
Hong Kong may not be able to adopt an aggressive tax system as the city’s financial industry, a pillar of the local economy, needs the support of a competitive tax system to attract global capital. This suggests Hong Kong must count on third distribution more. The city certainly has much leeway to facilitate its own third distribution mechanism in helping its grassroots class.
But a more fundamental solution lies in improving people’s livelihoods and raising their incomes by expanding and diversifying Hong Kong’s economy. The city’s land scarcity, the resulting high operating costs and narrow economic base have constrained economic activities, affecting many people’s livelihoods and limiting their incomes; the youth are particularly affected by limited choices of career path and a stagnant social upward mobility.
Hong Kong’s designated role and functions in the 14th Five-Year Plan will effectively tackle these problems. These include developing new industries (innovation and technology, creative industries) and new services (legal and dispute resolution services, asset and risk management) aside from strengthening its traditional industries (particularly finance, trade and transportation), as well as its role in the Guangdong-Hong Kong-Macao Greater Bay Area development.
During the central government delegation’s trip to the city to expound on the details of the 14th blueprint, Huang Liuquan, deputy director of the State Council’s Hong Kong and Macao Affairs Office, said there would be more national policies or measures to be rolled out to facilitate Hong Kong residents’ participation in the Greater Bay Area development, creating ample economic opportunities for the city, helping improve livelihoods and opening more career paths to young people.
By improving the first and second distributions while introducing the third distribution, the society’s backbone — the middle class — will be rebuilt and strengthened. A bigger middle class will certainly contribute to social stability, helping to shape a healthier political environment. And an improved upward social mobility will help to pacify career-related anxiety of the younger generation and ease the problem of inter-generational poverty. The 14th Five-Year Plan does provide Hong Kong with a way out of its predicaments.
The author is a community officer of the Hong Kong Federation of Trade Unions.
The views do not necessarily reflect those of China Daily.