Bloomberg News

Hong Kong’s Leung Seeks Turnaround With Economy Focus

October 08, 2012

Hong Kong chief executive Leung Chun-ying

Leung Chun-ying, Hong Kong's chief executive, center. Photographer: Jerome Favre/Bloomberg

Hong Kong Chief Executive Leung Chun- ying completes his first 100 days in office with his popularity at its lowest level, putting pressure on him to return to campaign pledges to tackle Asia’s biggest wealth gap.

He is set to review a proposal for increasing the minimum wage after he receives a report this month from a panel of academics, workers and employers. That would help residents squeezed by inflation and the world’s highest home prices.

Leung’s plan to focus on the economy has been derailed as closer ties with China stoked concerns the city’s autonomy will be eroded, with thousands protesting last month over proposals for Chinese national education classes. The former property surveyor has also been buffeted by slumping export demand and the resignation of a top official since becoming the former British colony’s third post-handover leader on July 1.

“Leung needs to put economic issues higher up on the agenda,” Kevin Lai, a Hong Kong-based economist at Daiwa Capital Markets Ltd., said by telephone. “He needs to let the public know that this is a top priority to the government or he will continue to lose popularity.”

In the latest survey conducted by the University of Hong Kong’s Public Opinion Programme, Leung’s support rating dropped to a low of 46 on a scale of zero to 100, with satisfaction over his government’s handling of human rights and democracy development declining. The 58-year-old said Sept. 8 he wants to focus on livelihood issues, which the poll said his government does better on.

Recession Fears

Hong Kong must maintain growth in order to address issues such as housing and poverty, and the government wants to capitalize on China’s support to boost the economy, Leung said Oct. 1 in his National Day speech. The city’s economic and social ties with the mainland are “inextricable,” he said.

Hong Kong’s economy shrank 0.1 percent in the second quarter from the previous three months as the European debt crisis eroded demand for exports. The risk of a “technical recession” may increase after declines in exports and a slowdown in retail sales, Financial Secretary John Tsang said Sept. 2.

With the wealth gap at a record in the city, the chief executive plans to set poverty lines with reference to the city’s median income, a practice in line with the Organisation for Economic Cooperation and Development, said Ho Hei-wah, a member of an advisory group to the government on poverty.

About 1.2 million residents, out of a total of 7 million, will fall below the poverty line under the new measurement, said Ho, who is a director at advocacy group Society for Community Organization.

Minimum Wage

The minimum wage committee will recommend a 7 percent increase, to HK$30 ($3.90) an hour, according to three people familiar with the proposal who declined to be identified before the report is submitted.

It took Leung’s predecessor Donald Tsang almost his entire seven years in office to implement the initial wage floor, and if he could speed up the review process that “would be a big step forward,” said Michael DeGolyer, a political scientist at the Hong Kong Baptist University.

The average gross household income of the poorest 10 percent of the population fell 16 percent to HK$2,170 a month in 2011, from ten years earlier, according to a government report. The comparable income for the richest 10 percent jumped to HK$137,480 a month, a 12 percent increase.

Home prices surged to an all-time record in September, fueled by record low interest rates and an influx of mainland Chinese buyers, who made up about a third of new home sales by value in the first quarter.

Street Protests

On the day Leung took over, the 15th anniversary of Hong Kong’s handover to China, 112,000 people took to the streets to call for higher minimum wages, and protest against income disparity and human rights abuses in China.

Street protests against a proposed anti-subversion law triggered the 2005 resignation of Tung Chee-hwa, the city’s first chief executive.

Leung started his term with a support rating of 53.8 on a scale of zero to 100, according to a survey by the University of Hong Kong’s Public Opinion Programme. That rating dropped to 46 in the latest survey conducted from Sept. 18 to 27, after protesters last month said national education classes in schools will erode independent thinking by whitewashing the rule of the Communist Party in China.

Not Ready

Leung “was trying to be more assertive with integration, and Hong Kong people may be not ready,” said David Zweig, chair professor of social science at the Hong Kong University of Science and Technology. “They are certainly not ready to have schools whose books tell people that democratic processes are not good and the one-party system on the mainland is good.”

A government-appointed panel recommended today that the course guidelines for national education be “shelved” because of public unease over the curriculum, Anna Wu, chairman of the committee, told reporters. The plan will be submitted to Leung for consideration, Wu said.

Leung faces a delicate balancing act. While there’s discontent over competition for housing, school places and hospitals from mainland residents, Hong Kong’s economy is increasingly reliant on spending from across the border.

Fights broke out at a government forum to discuss plans to develop 787 hectares (1,945 acres) of land that borders Shenzhen, China, the South China Morning Post reported on Sept. 23. Those against the plan said the development may become a backyard for mainland Chinese.

Birth Ban

To pacify the public, Leung backed moves barring Chinese mothers from giving birth in the city, introduced housing for locals only and stopped the issuance of more visas for mainland visitors.

Leung warned Hong Kong residents though in an interview published Oct. 5 in the Post that they had to be “mindful” of how the mainland perceives the city.

“The recent acts by certain people in Hong Kong, such as flying the old colonial flag or making allegations against mainlanders’ activities in Hong Kong, have not gone unnoticed by the mainland,” Leung said in the interview. “We shouldn’t try to build a wall or draw a line between ourselves and the rest of the country.”

Leung’s rapid response to the city’s deadliest marine accident in four decades last week may soften some of the criticism. He coordinated the rescue after two ferries collided off the coast of Hong Kong, killing at least 39 people. He mobilized more than 1,000 officers in the hours after the disaster, visited hospitals, and started a criminal investigation.

Fast Response

“He didn’t wait around,” DeGolyer said. “C.Y. Leung’s administration was the fastest to respond to tragedy.”

The city’s most pressing problem remains the economy, said Daiwa’s Lai, who has cut his growth forecast for Hong Kong to 0.9 percent from 1.5 percent for 2012.

“Economic recession will be the biggest challenge for CY in the next 12 months,” said Lai. “Leung needs to get his priorities right.”

To contact the reporters on this story: Simon Lee in Hong Kong at slee936@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net

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


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