In HK, ‘the brink’ has been passed

Reaction to Carrie Lam’s Policy Address has been largely predictable. In general, it has been called “too little” by a wide cross-section of the political spectrum, even supposedly staunch pro-establishment figures. 

Most of this criticism is fair. Aside from the rabid yelps of legislators who think Lam only needs to step down and all will be well, and the mindless provocations of journalists, thoughtful commentators have put up plenty of logical objections. It isn’t only protesters who are angry, disappointed that Lam didn’t hand over a roadmap for the resumption of the political reform process. Plenty of others are miffed by her proposed solutions to economic challenges, too.

The Hong Kong Chief Executive’s speech was, indeed, underwhelming. Yet too much of the criticism has been focused on the details. That is not the speech’s biggest shortcoming.

On the contrary, Lam has many good ideas to work on. The decision to reclaim 700 hectares of private land will likely be seen years from now as a bold initiative. Building 10,000 low-cost homes over the next three years will surely make inroads, however small, into the lives of 200,000 people currently in subdivided apartments. Throwing out welfare lifelines is a necessary action. 

Where the speech failed was in presenting a realistic vision of how bad the current situation is. Lam couldn’t articulate what she most needed to. She couldn’t tell the people of Hong Kong that there is a future awaiting them in which life will get harder before it gets better.

It wouldn’t necessarily have required addressing political reform. She could have stuck to the economy. But her speech needed a frank assessment of how bad things have become so that people could think about what sacrifices might be needed from them to turn things around.

Instead, this is what Lam said:

“I believe that the efforts made to lay the solid foundation of Hong Kong would not be wasted. So long as we have unwavering confidence, adhere to the one country, two systems principle, stop violence in accordance with the law and restore social order as early as possible, Hong Kong will soon be able to emerge from the storm and embrace the rainbow.”

This is claptrap. Hong Kong has zero chance of emerging soon from its current troubles. She knows it. Beijing knows it. Her audience knows it. She should have been frank about it. 

It’s not just about ending the protests. This recovery is going to take years, if not decades. The housing crisis needs a long-term fix. The tourism industry needs wholesale reinvention and the property market will have to be restructured, which will take sweat and tears, if not blood. The tax system must be overhauled, which cannot happen overnight. 

Even if Lam’s hands were tied on the specifics of work still to come, she could have braced her audience for it in this speech. Instead, she presented a bitter pill for the public to swallow the way a parent gives medicine to a child: “Drink up, it will make you feel better in no time.”

What makes this more frustrating is that it’s not as if she doesn’t have a role model to follow. President Xi Jinping would likely have been pleased to see Lam do some plain talking, as he has been doing on his tours of the country since the US-China trade war began. She could have followed his example of warning the public that there will be lots of “eating bitterness” ahead, while reassuring them that the government is going to do everything it can to help. 

Make no mistake, the road ahead is darkening for Hong Kong. Putting aside the possibility of this becoming another Belfast (in the 80s) or Tel Aviv (today), the economy is facing challenges the city’s residents haven’t had to think about in a generation. 

Lam’s key announcement yesterday only hinted at this. Taking back idle land is the start of a positive, long-overdue effort to address inequality that has grown to combustible levels here since the handover. But it can’t be done in a sandbox; experiments have knock-on effects in the real world. The property market is a powerful, complicated force in society. That is why Lam had to also throw out a sweetener to people who can afford to buy homes worth more than US$1 million. 

Stop and think about that. Where else in the world would a government give out incentives to buy million-dollar homes? That the Hong Kong CE needed to do this speaks of how precariously balanced the world’s most expensive property market is. When Lam referred to the city being on the brink, she could have been referring to the real estate industry.

Unchained memories

It’s easy for old hands to understand why Lam might be nervous. Those who lived here in 2000-2003 remember what a real property downturn is like. It’s not like the blip of 2007-2008. It’s like Disneyland’s Space Mountain: a roller-coaster where the tracks are turning down but there is no way to know how far your carriage will fall, because you are in the dark.

In Hong Kong, every sector of the economy is both dependent on, and feeds into, the property market. No better example is needed than the tourism industry, which is well over “the brink” already. Jobs are being shed, and will continue to be shed, probably for years to come. In turn, nondescript hotel brands catering to mainlanders – who aren’t ever coming back – will fold, and the office buildings they were converted from will stand empty. Then the landlords will reconvert them, and the bottom will drop out of the office market. 

At the top end of the residential market, meanwhile, the flight has clearly begun. Portuguese “golden visas” are booming. Anyone with an HSBC Premier account should just try getting through to the bank’s international department to ask about London-based accounts. A strengthening pound is only accelerating the rush. 

No leader wants to scare their public, so perhaps some of these details had to be left to reckless columnists to enunciate. But Lam could have found a more delicate way to say the same thing. The mainland visitor market is not coming back for many years to come. The property market is wobbling. Hong Kong will have to find another economic driver, and it won’t be easy.

Moreover, all the other drivers are being steadily eroded, too. They have been for years, but the twin artificial stimulants – mainland tourists in the malls and mainland investors in the property and stock markets – allowed this to go unnoticed. Shipping and logistics are going to Shenzhen and Nansha. The only pillars still looking strong are the financial-services industry (plus support cast) and the “regional operations” industry. And even those are arbitrage businesses that will subside gradually as the mainland opens up under the Greater Bay Area plan.

This is not intended to be a prediction of doom. Hong Kong has many strengths and it has been through worse than this before. But not in living memory. Bold reforms won’t be enough. Confidence is needed. And confidence requires the courage to accept, and explain, unpalatable truths. 

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