Bay Area can help SAR's economy avoid the problems facing Singapore

Singapore is not only seen as a rival by many Hong Kong people, but also a model of stability and prosperity. It appears that the island state's government, which has been in power since independence, can do no wrong.

Unlike Hong Kong, Singapore has a well-balanced economy in which finance, manufacturing, trade and property play a much more equal role individually in driving economic growth than the economy of Hong Kong, which has become overly dependent on just finance and property.

But even this tropical paradise in the eyes of many Hong Kong admirers has fallen on hard times. A 17.3 percent plunge in non-oil exports in June contributed to a surprising 3.4 percent contraction in Singapore's GDP.

The setback has been attributed to the Sino-US trade dispute which is widely seen to have deepened the slowdown in the Chinese mainland economy. Reductions in production at many mainland factories have, in turn, led to a sharp decline in demand for a wide range of electronic components and other industrial intermediary raw materials from various Southeast Asian economies, many of which are shipped via Singapore.

As a regional trade hub, the Singapore economy is more dependent on trade to drive growth than other economies, apart from Luxembourg, according to the World Bank.

While Hong Kong, too, is taking a hit from the ongoing trade dispute, its economy has continued to grow, though at a much slower rate than last year. In the first quarter of this year, its GDP grew an anemic 1.6 percent from a year earlier. Economists estimated that the performance in the second quarter would be just as bad, if not worse.

Economists have revised their economic growth forecasts down to 1.2 to 1.4 percent in 2019 - the slowest in recent years. But Hong Kong is expected to avoid a contraction because it enjoys one advantage Singapore doesn't have: close economic integration with the Chinese mainland.

To be sure, mainland economic growth has also been slowed by the trade war, among other things. But growth for the whole year is expected to exceed 6 percent, which is considerably higher than those of other major economies, including the United States, the European Union and Japan.

What's more, the Chinese authorities have much greater room than their counterparts to stimulate economic growth, both fiscally and monetarily. The government is expected to further cut rates and other charges to help businesses while the many cash-starved enterprises are looking for relief from the injection of fresh capital in the system by the central bank.

Like Singapore, Hong Kong's external trade has taken a hit from the decline in re-exports to and from the Chinese mainland. But the impact on the overall economy is limited because of the diminishing share of trade to total GDP in recent years.

Meanwhile, the demand for financial and other services from the mainland has remained strong, helping to sustain an economic expansion, albeit at a much lower rate than previous years. Looking ahead, Hong Kong's bond to the mainland is expected to be further strengthened by its inclusion in the Guangdong-Hong Kong-Macao Greater Bay Area initiative, which offers unprecedented opportunities to businesses and individuals in a much bigger market.

These opportunities have not gone unnoticed by many corporations in the US, Europe and Japan. Many of them are expected to consider Hong Kong as their regional bases or expand their existing operations in Hong Kong to maximize the city's unique advantages and the greatly expanded horizon into one of the economic zones that have the most promising potential for growth.

The economic slowdown is just a temporary setback for Hong Kong with its future prosperity underscored by the important role it can play in the Bay Area. Indeed, key infrastructure facilities, including railways and highways, have been in place. Work on the third runway has already begun. When complete, the project will help consolidate Hong Kong's position as the air freight hub for the region.

There are many problems, such as a housing shortage and the widening income gap, hardly to be solved by economic gains. In such social areas, Hong Kong is still lagging behind Singapore and many other developed economies.

Some economists have questioned whether it is feasible for Hong Kong to lease land in the Bay Area to build communities, or satellite towns, for SAR people served by Hong Kong-invested schools and hospitals. This suggestion, far-fetched as it sounds, raises another question as to whether a higher degree of social integration can help make life better for Hong Kong people.

The author is a veteran current affairs commentator.

(HK Edition 07/29/2019 page9)