Assessing ‘One Country, Two Systems’ needs care Zhou Bajun

Says major changes to the global and regional environment mean traditional measures for Hong Kong’s performance such as ratings must be thoroughly analyzed

The Hong Kong Special Administrative Region celebrates its 20th anniversary next month. In the past 20 years people tended to base their assessment of the economic results of “One Country, Two Systems” on two concerns: Whether the existing economic system remains intact and if the status of its existing industries in the world remains unchanged.

About the first concern, the SAR government and Hong Kong society in general cannot be more mindful of two charts than anything else in the world. One is the ranking of free economies published by the United States Heritage Foundation, in which Hong Kong has remained on top for 23 years in a row. The other is the competitiveness of Hong Kong’s economy as rated by two internationally celebrated institutions.

According to the annual competitiveness rankings published by the International Institute for Management Development (IMD) in Lausanne, Switzerland, Hong Kong was No 1 as of May 30 last year among 61 countries and regions, from second place a year earlier. In the Global Competitiveness Report 2016-17 published by the World Economic Forum (WEF) on Sept 28 last year, however, Hong Kong’s place dropped from seventh to ninth among 138 economies. It was the first fall in 10 years. Singapore stayed at second place.

It is not enough to focus on rankings alone, as finding out exactly why is just as important. For example, the IMD attaches more importance to Hong Kong’s efforts to improve its business environment, encourage innovation with a simple and relatively low tax regime, maintain free flow of capital and serve as a bridge linking the Chinese mainland with the global capital market. The WEF, meanwhile, finds Hong Kong not one of the best in The author is a senior research fellow of China Everbright Holdings.

healthcare, basic education, innovation or market scale. Hong Kong’s infrastructure, on the other hand, is the best in the world for the WEF but not the IMD, which sees it as not up to par.

Only with in-depth analysis can we understand the value of these rankings as references. Some considerations behind those rankings are linked to Hong Kong’s basic economic system while others reflect the SAR government’s administration and governance. Once we find out the truth about those rankings we will be free from the illusion created by such fancy titles as the freest economy in the world and the most competitive economy in the world. Only then can we see the real Hong Kong clearly.

Hong Kong used to be the biggest container port in the world before the handover. Today it is the fifth after Shanghai, Singapore, Shenzhen and Ningbo-Zhoushan.

The Shanghai Disney Resort announced on May 19 that it had received 10 million visitors since opening in June last year, making it “the favorite theme park in China”. In comparison the Hong Kong Disneyland Resort recorded 5 million visits in its first year, short of the initial target of 5.6 million.

It seems Hong Kong’s lower placing as a container port and the Hong Kong Disneyland Resort being overtaken by Shanghai’s are negative factors in assessing the economic results of “One Country, Two Systems”. In fact, however, the primary cause of Hong Kong’s decline in certain sectors was market shift. Obstruction by the opposition camp to hinder the lawful administration of the SAR government is also a major factor.

As far as the world rankings of container ports are concerned, Hong Kong is not the only one that has slid downward. Some other major container ports also dropped, such as Rotterdam of the Netherlands and Pusan of South Korea. Rotterdam was the fourth-largest container port in the world and ahead of Pusan back in 2005. Last year Rotterdam fell out of the top 10.

Hong Kong as a container port has lost ground mainly because its manufacturing industry had relocated to the Pearl River Delta region and particularly Guangdong, where goods for export increasingly go through Shenzhen instead of Hong Kong for shipping to overseas markets.

The success of the Shanghai Disney Resort becoming the favorite theme park in China just 11 months after opening was a work of market mechanism as well. There are no boundaries between Shanghai and other places on the mainland, whereas Hong Kong requires a travel permit for mainland residents to enter. Such restrictions on entering Hong Kong inevitably raise the cost of market access and in turn hinder economic growth. That is why the European countries signed the Schengen Agreement. Hong Kong as a market is very limited and must join the Guangdong-Hong Kong-Macao Greater Bay Area for future growth. To do so Hong Kong needs to play down the significance of its boundary with the mainland.

In a word, we should discard blind faith in world rankings published by “authoritative institutions” in terms of how free or competitive Hong Kong’s economy is. Hong Kong’s existing capitalist system has not changed since the handover. What has changed is the market, both local and global.