Big Lychee, Various Sectors

One of the many mundane-but-somehow-bizarre things about the parallel universe that is Discovery Bay is the golf cart. The car-free, whites-only, maximum-security residential compound is good for walking and cycling and has a reasonable bus system as well as taxi-vans. But some of the more overweight, overpaid and over-lazy residents, many of whom sweat profusely just standing and eating an ice-cream, can’t live without powered personal transport. They compete to rent or own one (or sometimes more) of a fixed number of silly-looking golf carts.

Way back in history, I recall people laughing when these clunky little vehicles were changing hands for HK$500,000. Since then, they have gone through the HK$1,000,000 mark and beyond. By comparison, this apparently modern, gleaming, high-tech model in the US will set you back around HK$95,000. It’s a fascinating case study in supply and demand; of course buyers are mostly counting on selling later for a profit. Everywhere else on planet Earth, you sell a used car for less than you bought it.

Someone in Disco Bay recently bought one of these golf carts for HK$2.1 million. I don’t know who the buyer was, but I do know who sold it. He is a real estate agent with several decades in his esteemed profession. He has also just sold both his apartments, including the one he lives in; he is now renting and sitting on cash. He is planning to be proud owner of another golf cart and two – if not three – apartments again by this time next year after the Great Crash of 2012-13.

From time to time I take a quick look at the most recent few days’ chatter on Asiaxpat’s billion-mile-long thread on the state of Hong Kong’s property market. Recently, a more pointedly titled ‘when will Hong Kong property drop?’ discussion started. Both contain some interesting debate, and both leave you absolutely none the wiser. (There are distinct property markets. Prices of high-end luxury places on the Peak and of remote New Territories rabbit hutches don’t track each other. For the sake of argument, however, the threads seem to be about what we might call ‘normal’ residential units for non-billionaires who don’t want a 90-minute commute. In other words, the sort of property that rises and falls in price in tandem with Disco Bay golf carts.)

Basically, we are looking at three possible scenarios…

No-one has much time for the middle ‘green’ scenario above, in which Hong Kong property prices just meander along at their current levels. Maybe it’s just too boring, or perhaps it’s just sort of improbable. This subject is compelling because the world is in such a state of flux right now that everyone assumes something serious is going to happen before long, and no-one will get out unscathed.

The happy, positive-thinking, dopamine-infused ‘red’ scenario has prices going up (mostly) and forever (pretty much, at least in terms of the human lifespan). Debasement of currencies is part of the reason, as is the Big Lychee’s status as a uniquely desirable place to launder money live in – like London, Manhattan or Monaco. Local buyers haven’t over-borrowed. China won’t come crashing down, because of its vast latent domestic demand for everything. And our new leader CY Leung won’t do anything to hurt property owners because this is Hong Kong, and it’s just not done.

People have been poking fun at this upbeat argument for years. If they had bought a flat at the beginning, they would be over 60% up by now. With such an impressive track record, it is hard to believe that anyone begs to differ.

But they do, despite knowing that no-one ever made money betting against the Hong Kong property market except with a hefty helping of pure luck in timing. The wrist-slashing doomsday ‘blue’ scenario has prices dropping, and not by some limp-wristed 10%, which belongs in the green line. Obviously, they disagree with all or most of the optimists’ points. They also lie awake at night worrying about Europe.

Some would say that we in Asia don’t need to get too worked up about it. But it’s hard not to get nervous when you see leaders from the US, UK and elsewhere outside the euro zone begging Germany’s Angela Merkel to share her country’s wealth with a continent full of foreigners – something they sure as hell wouldn’t do, if they had any wealth. In some little-noticed remarks some time ago, Merkel said that Germany needed its low consumption and its high levels of exports and savings to look after its own aging population in the decades to come. She didn’t sound like this was a negotiable thing. People are now trying to convince her that Germany’s future generations of retirees and workers would suffer more from Greek/Spanish/Italian mayhem and a euro break-up than they would from just sharing out all their goodies now. As a trained physicist, she is no doubt looking at the idea objectively.

I can’t see any upside and suspect the Disco Bay real estate guy is right – but that’s what I thought 12 months ago and 24 months ago.

The weekend is hereby opened.

Like Alice’s Queen, who could believe in six impossible things before breakfast, it seems Hong Kong is being invited to imagine something unattainable every day in the lead-up to CY Leung’s arrival in office on July 1. Yesterday, we had ex-Monetary Authority boss Joseph Yam suggesting we ditch the dollar peg and give ourselves the nice strong currency we deserve. And today, Development Secretary Carrie Lam ponders the abolition of the New Territories indigenous villagers’ small-house policy.

It is not the swiftest, most vengeful of abolitions that she has in mind. The career bureaucrat and (rumoured) Chief Secretary-to-be “sees an opportunity to propose an end to the policy in the next five years.” Assuming that they take this ‘opportunity to propose’, our officials – or their descendants – would actually scrap the handouts of land for three-storey villas in 2047, thus ending it for eligible recipients born after 2029. But wait! There’s more! She says: “the government may need to give something to villagers in return when the policy is ended.”

In return for what, she doesn’t say. My hunch is she means ‘in return for not lynching every District Officer north of Boundary Street and not invading Central and burning it to the ground’. New Territories natives, represented by the mafia-like Heung Yee Kuk, have violently defended their ‘traditional rights’ ever since being colonized in 1898. Like the property tycoons, Beijing courted and cultivated them in the run-up to the handover in 1997, giving them an overweening sense of entitlement. But unlike the tycoons, a withdrawal of protection from on high doesn’t perturb them: they don’t answer to anyone on high in the first place. Carrie admits as much when she tells the SCMP it is ‘hard to enforce the law’ up there. This is buried away in the middle of page C3, but really belongs on the front page, not to mention in a stiff message to the Secretary of Security and in a report to Beijing…

In theory, the small (as in 2,100-sq-ft) house policy is a 1970s administrative decision that could be reversed with the stroke of a pen tomorrow morning. In practice, it is something the New Territories natives will fight to the death over. Originally designed to give poor farmers’ sons a place to raise a family not too far from the pigs, it has become a meal ticket for life as beneficiaries rent out two, if not all three, floors (plus the extra unauthorized one).

Judging from her tone in the SCMP articles, Carrie sounds jolly pleased with herself for even mentioning the subject. Officials have swept the issue under the carpet for years, but they now have to consider non-indigenous residents’ resentment of the aborigines’ privileges. This came to a head with recent proposals to treat village illegal structures more leniently than urban ones, which led to that burning sense of injustice that flares up in Hong Kong when one group gets a benefit that another does not.

My favourite example of this was when the Mid-Levels Escalator opened. Operating in a downhill direction until 10.30am, it was of no help to the schoolgirls who walked up to Caine Road every morning. The students’ need to make this daily climb, which had been going on for decades, suddenly became ‘unfair’. However, the schoolgirls did not demand that the Escalator be dismantled. Most urban residents, on the other hand, would gladly pull the plug on the small house policy right now.

We might oppose the system because of the myriad abuses, the sexual inequality and its unsustainable nature as currently structured. But essentially we resent the basic principle that the indigenous villagers can get affordable homes. So why not extend the principle and allow every Hong Kong resident some space for personal dwelling – albeit in a high-rise – free of excessive government land/lease payment? (Of course this would be ‘unfair’ to existing apartment owners who overpaid; we would probably have to send some Mid-Levels schoolgirls to convince them to just live with it.)

In sum: scrap the bloated tax on homes via the high land-price policy that is imposed on everyone except lucky NT indigenous males. Maybe this will be tomorrow’s impossible thing.

You wouldn’t have thought that an academic paper attributed to one Professor the Honourable Joseph Yam, GBM, GBS, CBE, JP would attract much interest, but the former HK Monetary Authority boss has created a stir with his proposal to scrap Hong Kong’s currency peg. The flap is not so much over the idea, which isn’t new, but over his decision to disown what is virtually his lifetime’s work – and to do it just weeks before CY Leung, whom he opposed, takes over as the new Chief Executive.

South China Morning Post cartoonist Harry wittily suggests that Yam is trying to divert attention from his role in the Lehman minibonds saga. Or maybe it’s a cry for attention – maybe the retired bureaucrat wants some sinecure jet-setting around as a Dominique Strauss-Kahn with Chinese characteristics on the flamboyant international financial geniuses circuit.

Whatever his reasons, it’s not because he thinks we should scrap the peg. There is only one intellectually coherent alternative to the link to the US Dollar: a free float – and that’s not what Yam proposes. Unfortunately, it comes with a nightmarish snag no-one wants to mention. So we are stuck with the fixed exchange rate, as Yam surely realizes.

We are told that the main advantage to the peg is that we know the exchange rate is always HK$7.8 to US$1, which makes life and international trade and currency transfers nice and predictable. But this is hardly worth what we masochistically have to put up with in return: US interest rates, which are often too low or too high for our own economic circumstances, so we end up with inflation or deflation – and particularly property bubbles and crashes. The real, supreme benefit of the peg is that it is simply not one of the other possible systems. Which are…

Using, or pegging to, the Chinese Yuan – which is absurd, but you have to mention it out of political correctness, and you then have to mumble something about how the time isn’t right because the RMB isn’t convertible. The fact is that pegging to a unit that is ruthlessly manipulated for its own purposes by a communist dictatorship makes far less sense than pegging to the freely floating currency of the world’s strongest and most flexible and innovative, if currently bankrupt, economy. But you can’t put it that way. (Setting your freely traded currency up as a proxy for an unconvertible one would be stupid as well, and Beijing would probably forbid it anyway.)

Pegging to a basket of currencies, as proposed by Yam as of yesterday and many others beforehand. There are all sorts of variants that would allow us to follow an average of other economies’ monetary conditions rather than just those dictated by the Fed. This implies a wider trading range (so we get all those tedious ups and downs from 7.5 to 8.1 to 7.6 day after day) and possibly less inappropriate interest rates (thus a less hysterical property market). In theory, it sounds like having your cake and eating it, and if CY Leung ditches the peg this is what he will go for. In practice, you’re looking at pegging to a bit of Swiss Franc, a bit of Sterling, a bit of Yen and Aussie and Canadian dollars – but mostly the same debased US Dollar we use today, and its even more horrifying counterpart, the euro. The outcome could be the worst of both worlds. We’d still be stuck with other countries’ monetary policies. Even worse: our local officials could dabble by tweaking the basket’s exact composition. Which leads us to the impossible ideal.

A freely floating currency. The official reason this is a no-no is that we are too small and vulnerable to have our own unit. It could bounce around all over the place (imagine what it would do during a SARS outbreak) and we would need to keep reserves to defend it. There is something in this; Hong Kong adopted the peg because its people lost confidence in their own, floating, currency during handover jitters back in the early 1980s. Looking on the bright side, a free float would have a libertarian ideological integrity to be proud of. It would also put an end to the demented yo-yoing of local property prices. That’s because we could adjust interest rates to suit our own economic conditions, which sounds good until we ask ourselves: who does the adjusting? Could it be the sort of idiots who generally run Hong Kong because the paranoid Communist Party in Beijing doesn’t trust anyone else here? Yes it could. The idea of a CH Tung or a Donald Tsang or a CY Leung tweaking the monetary policy dial in a blind panic every 30 minutes doesn’t bear thinking about. But of course no-one mentions this.

So the masochistic 7.8 it is - logically, anyway, in the absence of top-quality independent monetary policy-making skills, which are in pretty short supply worldwide right now, let alone in Central. That said, if anyone is going to scrap the peg, it is CY; he must have noticed how much Singapore’s micro-managers enjoy playing with their own secret basket of currencies.

Could it be that Yam is anticipating this, and wants to pre-empt the move as elder statesman who supported CY’s rival Henry Tang? He could say ‘I told you so’ if it goes wrong (he makes a big fuss in his paper about the possibility of Hong Kong lapsing into big government and budget deficits, and [in para 89] even mentions the CY-associated word ‘populism’). He could claim some credit, after years of defending the peg, if it works.

The long-overdue but still-improbable revolution that took place in Hong Kong in the first half of 2012 doesn’t have a name. For two decades Beijing had closely cultivated the city’s tycoons – to the extent of not merely indulging the property cartel’s parasitism upon the local community and economy, but institutionalizing it. Then, in the space of a few days last March, the Communist Party leadership coldly tossed its billionaire sycophants aside at the last minute and re-rigged the Chief Executive ‘election’ to ensure the victory of semi-populist semi-outsider CY Leung.

The tycoons’ puppet-candidate, dimwit textiles-empire scion Henry Tang, was already in disgrace for having an unauthorized extension beneath his home. In the weeks and months after the quasi-election, the law also turned on three property magnates – two of Sun Hung Kai’s Kwok brothers and Chinese Estates boss Joseph Lau.

While relieved that Beijing has finally broken the grip of the plutocrats, Hong Kong people are also nervous of exactly how populist or leftist or Maoist CY will be. They can be satisfied at having induced Beijing into abandoning the old tycoon-bureaucrat ‘elite’, but frustrated at knowing that they have little more influence over what is happening. And we are not even entirely sure what is happening. Legislator Regina Ip wrote in last Sunday’s South China Morning Post:

…more businessmen and former officials in the camp of disgraced chief executive hopeful Henry Tang Ying-yen are coming to grief over alleged corruption in Hong Kong or Macau… , fuelling a conspiracy theory that the retribution game is on. Whatever happened, call it retribution or simply the withdrawal of protection by the powers-that-be, a reshuffle of the deck upon the election of a new leader is likely to be the shape of things to come.

So the idea that ‘retribution’ is taking place is a conspiracy theory, but the notion that we are witnessing ‘withdrawal of protection by powers-that-be’ isn’t? Regina seems to be suggesting that leaders in China or Hong Kong knew that certain tycoons were corrupt but ensured that local law-enforcers held back. In Macau, whose prime role is money-launderer to Mainland gentry, that sounds all too believable. In Hong Kong, whose regulators, remember, turned in Sleaze City’s corrupt official Ao Man-long, we would like to think it is less so. Maybe Regina, who was Secretary for Security in the early 2000s when the tycoons were nagging Beijing to let them get their hooks deeper into the local administration, could tell us more.

I mention that Beijing has broken the grip of dimwit textile-empire scions. Not entirely true. One sad but inevitable measure following the 2012 Lychee Revolution is a bit of reconciliation to save the losers some face – hence CY’s presumed appointments and reappointments of some of outgoing CE Donald Tsang’s cronies to public office. Thus we turn to page 9 of the Standard this morning and see James Tien – the dimwit textile-empire scion’s dimwit textile-empire scion – unveiling some cretinously lame HK Tourism Board campaign.

It obviously made some marketing floozy really hot and breathless with excitement when her boss approved the Bouncy Wetland/Michael Jackson wax-figure idea to attract youngsters and families from short-haul markets like Malaysia and the Philippines. The bouncy wetland sounds like some inflatable thing you wouldn’t let your kids play on because of the mess, but that would be too much like fun; apparently it’s to do with mudskippers. Of course, the HKTB are trying to sell snow to Eskimos here: you get 10-foot-tall mudskippers down there in the tropics, and even the most easily amused Filipino won’t be impressed by our puny, and only half-slimy, local ones.

There’s some justice to this. The Hong Kong inbound tourism industry is essentially an extension of the property cartel, designed to enrich a handful of landlords while, at best, inconveniencing the other 99.99% of us. The more inept a job Tien’s HKTB does in attracting yet more visitors, the better off we will all be. Keep up the good work, James.

‘HK firms nowhere in the big league’, yesterday’s South China Morning Post reported…

The global influence of Asian multinational companies is growing, a study has found. Chinese companies in particular are rising fast – but, perhaps surprisingly, Hong Kong firms aren’t among them. In fact, so few were seen as having global reach that Hong Kong was excluded from the study.

“There were no Hong Kong companies included in this study largely because there are not many Hong Kong-headquartered companies that we would consider genuinely global. You could argue that Jardines, Swire, and Hutchison Telecom are, but probably no more than that,” said Gavin Watkins, director of professional services company Towers Watson’s International Consulting Group for Asia-Pacific, which commissioned the study.

Watkins said: “I was quite surprised that there weren’t more intrinsically Hong Kong multinational corporations. What you do have in Hong Kong are notional headquarters of some mainland Chinese companies that have been established here for the purposes of the Hong Kong stock exchange or the like. But genuine headquarters – where the brains of the business are, such as the head of human resources of the chief executive – seem to be disproportionately small.”

(‘Small’ here probably means ‘few’. If a relevant press release or executive summary existed, it would be here, but apparently none does.)

Towers Watson is an HR consultancy – hence the suggestion that a city’s ranking in multinational business comes down to the presence or absence of ‘brains’ in the form of human resources bosses. Still, the basic gist of the article seems true enough: “a quarter of the Fortune 100 companies are Asian multinationals,” yet none are from the Big Lychee.

A glance at the Fortune line-up shows Hong Kong-listed Sinopec at number 5. Not only is it not local, you could argue it is not really even a company; coming under the State-owned Assets Supervision and Administration Commission of China’s State Council, it is more of a government department. Down at number 46, tucked in between Honda and Siemens, comes HSBC. This really is a Hong Kong company, but it became more British after absorbing a large UK bank back in the 1990s. Although the CEO tends to hang out in Hong Kong, so far as I know the HSBC Holdings HQ in London houses the group’s supreme HR boss and is therefore not ‘notional’.

That’s pretty much it. As the Towers Watson guy says, you’ve got Jardines, Swire (including Cathay Pacific) and Li Ka-shing’s Hutchison empire, which as well as telecoms interests also runs a nice slice of the planet’s sea ports.

Should Hong Kong have more and bigger home-grown multinationals? Global companies tend to emerge from big countries. There aren’t many world-beating corporate behemoths from Ireland, Israel, Belgium or plucky little Singapore. Even the (non-Indian) emerging markets’ giants are mainly state-linked.

On the other hand, if any smaller economy had spawned big international corporations, it should have been Hong Kong. Local tycoons like Li, YT Cheng, the Kwoks and SK Lee pop up around the top of the famous international Forbes lists of billionaires. Surely, they could have or should have grown globe-straddling businesses to match?

Running our finger back down the Fortune 100, we see at number 32 the French retailer Carrefour. It is successful because it delivers what customers want: a massive range of groceries at decent prices in convenient hypermarkets. They are all over the place, as you will see if you go over to Shenzhen, or Taipei or dozens of other regional cities. But not Hong Kong. When Carrefour tried setting up here, it failed, at least partly – most people assume – because the established supermarket duopoly used its influence in real estate and wholesale to keep it out.

Big Hong Kong companies do not appear in Fortune’s list of multinationals because they are fat, lazy fiefdoms that can only make profits if they do not have to compete. With seven million captive consumers on this side of the border, plus exposure to the ever-scummy Mainland property market, they have little incentive to create value or be innovative. They wouldn’t last five minutes in a modern, free-market capitalist environment. Furthermore, particularly with their government-guaranteed stranglehold on space, they make sure real entrepreneurs have as little chance of growing as possible.

We eagerly await the Fortune 100 Corporate Parasites – a list of firms ranked by how much profit they make from monopoly, collusion and other forms of legalized theft – which will surely make Hong Kong hearts glow with pride.

The Hong Kong Council for Social Service releases a shocking report: poor people don’t have much. Nearly one in five people in the Big Lychee, the organization says, lack four or more of 35 ‘necessities’, thus qualifying as deprived.

I may be one of them. The full list is in Chinese at the back here. Some of the 35 items are without doubt essential or at least highly desirable: a new school uniform a year for kids, air conditioning for summer, a home refrigerator, hot bathing water in winter, eyeglasses if needed, breakfast daily, fresh fruit weekly, warm clothing in winter, and convenient public transport. Some may not be matters of life or death, but it would probably be inconvenient or even depressing to lack them: ability to afford wedding gifts, ability to afford a visit to a teahouse, assistance at home during sickness, ability to borrow HK$3,000 in an emergency, access to advice on important decisions, and basic English. Others are arguably dispensable; for example, do you need a family camera if you already have a mobile phone? Others are a bit hard to define, like respect, self-esteem, and access to leisure activities.

Without finishing the list, I can claim to tick three of the boxes. I don’t have a home TV (my amah ‘borrowed’ it years ago on finding I never switched it on). I don’t have neighbourhood recreation/sports facilities (unless you count the strip of gruesome bars on Wyndham Street). I don’t have the ability to visit family at Chinese New Year (or at least I don’t have the desire or energy to blow so much time traipsing around two continents every February). I am technically three-quarters in poverty. But I’m still happy!

One of the most telling phrases I ever read about this city (in an old Lonely Planet guide) is that you can never quite work out whether you are rich or poor here. Most of us fall somewhere between astounding and quite visible extremes. The serious poverty people most worry about is that affecting kids: typically single-parent families from the Mainland probably wishing they still had residency rights back on the other side of the border. The government tries to help out with travel allowances, computer/Internet vouchers and other handouts. Perhaps the real scandal is among the elderly. Bureaucrats who ensure their own health needs are generously met and are sitting on over a trillion dollars in reserves take apparent pride in denying penniless 80-somethings basic dental care.

This mentality dates from colonial times, when public services were viewed as a waste that would simply encourage surplus mouths to settle in Hong Kong. It is the sort of thing the next Chief Executive, CY Leung, probably intends to fix, should the pro-democrats in the Legislative Council deign not to put too many obstacles in his path.

As a sign that times are changing, I return to my desk after a couple of weeks away to find two souvenirs of Donald Tsang’s outgoing administration: an Audit Commission report on the CE’s overseas hotel arrangements and some Independent Review Committee blather about senior officials accepting luxury yacht and jet travel from tycoons…

Click to hear ‘Poor, Poor, Pitiful Me’ by Warren Zevon!

We declare the weekend prematurely open by returning to the fun map quiz for all the family – chosen for its absurdly obscure subject matter. So I thought. As a surprising number of alert folk knew, the map shows concealed-carry laws: blue states must issue permits to anyone who qualifies, yellow/orange states retain discretionary powers, and mean old Illinois doesn’t let you wander around with a pistol.

What is the difference between pale blue/blue and yellow/orange states? (Very hard unless you cheat and do an image search.) And what makes Illinois unique in this context?

Uproar over the vandalism inflicted upon a painting of Jacob Zuma – a Shepard Fairey Barack Obama ‘Hope’ type of two-tone, showing the South African president in full-length, with his penis (or at least a penis) exposed.

The painting is now in Hong Kong, being restored and indeed improved in a renowned Hollywood Road art gallery. In a few weeks it will be presented to our outgoing Chief Executive Donald Tsang as a farewell gift on behalf of an adoring people in recognition of his great contribution to Hong Kong over the last seven years…

People have been chatting about Prizemart – an independent chain of stores in Hong Kong. The website doesn’t tell you much about what to expect. The emphasis on food safety suggests some sort of trendy organic health-fad scene. The list of branches suggests something on a more industrial scale. And what do they sell, other than olive oil, milk and pistachio?

So along I go to Li Yuen Street West, one of the little alleyways full of stalls selling ultra-cheap touristy tat like kids’ kimonos and plastic watches. And there the store is: I must have passed it dozens of times, yet it had never registered, despite having an open front and the distinctive logo above it.

It is just one standard shop unit – in other words, not much bigger than an average 7-Eleven. And for a claustrophobe of dazzling financial means like me, this is where the attraction wanes. Imagine the most packed-with-items, narrowest-aisled Watson’s; now double the density of piled-up, and piled-down, merchandise, and let a dozen Filipino ladies on a leisurely shopping spree occupy the remaining floor space. It is physically possible to make a circuit round the two-aisle store (no doubling-back possible) in maybe 8 minutes, but you need to be patient. A girl stands on a chair by the front to make sure you don’t start stealing things out of impatient boredom.

But if you want bargains, you’ll find them – or at least an eclectic range of them. Some pretty decent-looking olive oil, a wide range of chocolate (like Ritter Sport), noodles galore, nuts and other items, at 50% or less of what they would cost in the normal supermarkets, in my sketchy experience.

I am advised a Wanchai branch is more user-friendly. It is almost worth any discomfort to take a swipe at the local duopoly. And for anyone on a tight budget, you’d be crazy not to look at Prizemart.