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October 13, 2006
You are on the invidual archive page of The battle for a Hong Kong soundbite. Click Simon World weblog for the main page.
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The battle for a Hong Kong soundbite
For some reason the great and good feel they need to be able to summarise Hong Kong's economic model in a trite, meaningless phrase. "Positive non-internventionism", "Big market, small government", "Laissez faire", "Hong Kong Disneyland". Hong Kong's economic model is, in reality, a mixture of low direct taxation combined with a set of cartels that collude with the government, a reasonably well-established and free court system (as least as it applies to commerce) and a currency board with fiscal reserves that works because the city is still basically a trading centre who's commerce is largely denominated in US dollars. But now I'm really getting confused. The other day a geography professor was annoyed at a Nobel prize winning economist's views on why Hong Kong has been so successful. Yesterday a Chinese Communist was telling off Victor Sit (the geography professor) and the Hong Kong government for being too interventionist and not laissez-faire enough: A senior economist and bureaucrat in Beijing has penned a blistering condemnation of the Hong Kong government in a local Chinese-language newspaper, denouncing the administration for inserting itself into the free market and relying too heavily on the mainland for economic handouts since the 1997 Asian financial crisis.The rest of the article summarises the recent debate. Ideology is such an outmoded concept. Luckily Hong Kong has grown to such an extent it should be able to absorb a more "activist" government. And most interestingly The Don's policy speech didn't reveal any new boondoggles. Perhaps it really is all much ado about nothing. posted by Simon on 10.13.06 at 10:15 AM in the China economy category.
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Comments:
The low tax regime has always been a myth. One would be surprised at how heavy a hidden tax an ordinary Hong Kong citizen/homeowner is burdened with, in the form of hefty land costs (land premiums) buried in astronomical property price payments. Who gets the land premiums? The SAR government. Who pays them? Homeowners. (Developers would want to fool people that they are the payers when in fact they are the cash registers). What about market risks? Yes, surely the developers would shoulder market risks, but not much, since they have the government on their side, acting as the champion of high land price policy. posted by: Legolas on 10.14.06 at 12:49 AM [permalink]I disagree, Sure the land premiums are expensive. But the rent isn't THAT bad in places like the New Territories. Besides when you BUY property, you OWN it and it becomes an asset once it is paid off....not a burden. Also property prices aren't that far off from cities like LA and New York. Also keep in mind the average Hong Kong citizen pays NO INCOME TAX. The ones that do pay taxes, pay a low amount. Only the highest income earners pay a 16% flat tax....and they are pulling in a million a year or more.....they are still paying less in taxes than a US or EU citizen even if you factor in the "hidden taxes". Remember the states and EU have their own hidden taxes to compensate! posted by: Candid on 10.23.06 at 05:15 PM [permalink]It is true that those who bear the "land tax" burden are the ones who have bought properties, residential or commercial, and these are no few numbers. The land cost portion comprised in residential property price can be as high as 50% to 60% (e.g. for a HK$4 million property, the land cost may take up HK$2 million or more of the price tag). In other words, the owner of such a property would have paid HK$2 million (= US$256,410) in hidden land tax, which is the land premium paid by the relevant developer to government in return for the land granted for development, and which he gets fully reimbursed by the property buyer when he sells the property. posted by: Legolas on 10.24.06 at 07:24 AM [permalink]Oh well. Land is not cheap in Hong Kong no matter how you slice it, it's a very limited resource. The government is selling (leasing actually) a very limited resource and can sell it for as much as the market can bear. However people still invest in real estate and can make a profit in the end, so I really don't see this as such a big deal. Also it's not a recurring "tax", but a "one off" payment. Once you pay off the property, it's yours. If this means low "recurring" taxes like income taxes, I really don't have a problem with it. Aside from land, stuff here isn't really much more expensive than anywhere else. posted by: Candid on 11.09.06 at 08:39 AM [permalink] |
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