Bloomberg News

Hong Kong’s Wealth Gap Widens Amid Aging Population, Inflation

June 18, 2012

Hong Kong’s Wealth Gap Widens Amid Aging Population

People look at the illuminated night skyline in Hong Kong, China. Photographer: Scott Eells/Bloomberg

Hong Kong’s wealth gap, the biggest in Asia, widened in the decade to 2011 as the city’s population aged and employers demanded more high-skilled workers.

The city’s Gini coefficient, an income inequality measure, gained to 0.537 in 2011, from 0.525 in 2001, the Census and Statistics Department said yesterday in a report. The gap is wider than in Canada, the U.K., the U.S., Australia and Singapore, the department said.

The report highlights the challenges that incoming Chief Executive Leung Chun-ying faces when he takes office July 1 after pledging to aid low-income earners and increase housing supply. To counter the widening gap, the city’s outgoing leader Donald Tsang has offered rebates on tax, rents and utilities, as well as handed out cash to citizens.

“Tsang just trusts and believes in his funneling” of benefits, said Albert Chan Wai Yip, a lawmaker from the People Power party. “That’s why during his administration the rich and poor disparity problem deteriorated to such a large extent. He failed to improve the livelihood of the people in Hong Kong, especially the poor.”

Thousands took to the streets on the Labor Day holiday, demanding that Leung address a wealth gap exacerbated by a surge in housing prices. Property prices have advanced more than 80 percent since the start of 2009, according to data compiled from Centaline Property Agency, making Hong Kong the world’s most expensive place to own a home.

The Gini coefficient index ranges from zero to one, with a reading of zero meaning income equality, and one indicating complete inequality. Singapore’s coefficient rose to 0.482 in 2011 from 0.456 in 2001, according to the report.

Poorest Group

The average gross household income of the poorest 10 percent of Hong Kong’s population fell to HK$2,170 ($280) in 2011 from HK$2,590 in 2001, according to the report. The comparable income for the richest 10 percent advanced to HK$137,480 a month from HK$122,740.

“Restructuring of the economy leading to a shift in demand from the traditional low-skilled workers to high-skilled high- income workers was one of the key factors behind the widening income disparity,” the government said. The number of households with retirees had also increased, it said.

To help low-wage workers, Tsang implemented a statutory minimum salary of HK$28 per hour on May 1 last year in an attempt to resolve “social and economic conflicts” highlighted by Chinese Premier Wen Jiabao.

More Expensive

“Life has gotten harder,” said Chu Sai-Chuen, a 59-year- old on social security. “Clothes, food, housing and transport, everything is expensive.” Rice prices have more than doubled from 2001, while the cost of vegetables has more than tripled, Chu said.

About one-fifth of the seven million residents in Hong Kong earn less than half the median income in the city, according to Leung Chuen-suen, a lecturer at the department of Applied Social Sciences at the Hong Kong Polytechnic University.

“The industrial base in Hong Kong has been deteriorating,” said Chan. “You can hardly see any major industry in Hong Kong other than finance and property. Because of this industrial base change in the past twenty years, the middle class and the working class couldn’t catch up with the high-end earners.”

Social Benefits

Including tax and social benefits, the Gini coefficient would have stayed unchanged last year from the 0.475 in 2006, the government said in the report. In 2001, it was 0.470.

“The finding highlights the importance of one-off relief measures amidst an inflationary environment,” said Raymond Yeung, a Hong Kong-based economist at the Australia & New Zealand Banking Group Ltd. (ANZ)

Hong Kong’s currency peg to the U.S. dollar, in place for 29 years, may also be worsening economic inequality by importing inflation and limiting policy options, according to Cyd Ho, the vice chairwoman of the Labor Party. The city’s interest rates track those in the U.S., which has helped to fuel the property boom.

“We have to follow the American monetary policy, which doesn’t suit the needs of Hong Kong,” said Ho.

The U.S. Federal Reserve has said it would hold borrowing costs near zero through late 2014. Consumer prices may climb 3.5 percent this year, compared with 5.3 percent in 2011, according to a forecast by the government published on May 11.

The government would continue to assist ordinary people and to “closely monitor” the situation, according to the statement.

To contact the reporters on this story: Marco Lui in Hong Kong at mlui11@bloomberg.net; Patrick Boehler in Hong Kong at pboehler@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net


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