Hong Kong's secret strength

Chris Burford cburford at gn.apc.org
Sun Jul 19 14:23:36 PDT 1998

One dog that has not barked, resides in Hong Kong. The Hong Kong dollar has not fallen. True there is recession and unemployment but speculators even as powerful as Soros have not been able to make a killing despite the fact that the People's Republic of China would have been embarrassed by its devalutation.


I was testing an old friend and comrade who for years has been citing the financial and especially the land policy of Hong Kong as an example of a reform possible under capitalism. How had Hong Kong done? His reply was confident, and in essence is reported above.

Admittedly this city state has had the advantage of being a focus for capital accumulation in a situation of almost unlimited supply of labour (the equivalent of a perpetual motion machine) but on its own it was able to finance a new airport of a budgetary size comparable to the Channel Tunnel which has caused such difficulties to the British and French governments, and past successes are no guarantee under capitalism against future crashes.

The secret is a twofold inheritance from the British Empire of a rather unusual kind and what is in essence a socialised control of the market.

1) As Hong Kong trade grew under the old British Empire, London set the rules to its own advantage. In return for the honour of being part of the British Empire, Hong Kong had to be responsible for its trading debts. It was fine for the mother of the Empire to run into debt in foreign trade if foreigners could be persuaded to own pounds sterling out of goodwill, but not if a mere colony was running into a trade imbablance. Therefore basically the Hong Kong Currency Board System required the colony to deposit in positive assets in London collateral sufficient to cover trade debt. Over the years this accumulated an enormous sum of money. This sum has not only been a buffer against adverse turns in trade as during the current Asian crisis but it means that the Hong Kong state economy is structurally much less vulnerable to short term currency speculation and hedging.

2) Even more radical is its land policy. Private ownership of land is illegal!! Something not exactly publicised for different reasons on different sides of the political divide. It might sound a little too socialist after all. But in various parts of the former British Empire there are relics of democratic land policies with echoes to the land reformer and town planner of the end of the nineteenth century, Herbert George, which provided a framework to allocate virgin land (plundered of course from the indigenous inhabitants) to the white emigrants working class of the imperial country, to set them up as small freeholders, or with this land policy, in town collectives.

All land in Hong Kong is essentially rented. Land that falls into disuse is relet by auction. This is a very important detail of the system because it means in an economic downturn the price of spare land falls on the market, tenants move in at whatever the market price is, and economic activity starts up again. Since rent is top sliced off surplus value, this means that the rate of profit is protected to some extent by the immidiate fall in the portion going to land. (But only marxists could explain why.)

Hong Kong has undoubtedly been hit by the recession including for example in tourism, but this land system means it is far easier to cope with an economic down turn than in Japan. There, the banking crisis is above all a consequence of land capitalisation at prices far above the current. Vast quantities of capital in banking have to be written off to restructure the Japanese economic system. But in Hong Kong very little of the total asset value of the economy is held in land or in finance. As Marx predicts in the Communist Manifesto the bourgeois have to get over crises among other things by discounting old capital. As far as land is concerned in Hong Kong the only thing that has to fall is the price of renting new land. It falls, and the material assets are immediately in circulation again.

This resiliance of the Hong Kong economy allows it even in a decade where neo-liberalism is apparently sweeping all before it, to employ counter-cyclical Keynsian type measures to restimulate the economy. The government has now committed itself to building 80,000 dwellings a year. The prediction is therefore that Hong Kong will come through the recession faster than Japan.

Now there may be others on this list who can correct or amplify some of the details, and I have not delayed to double check everything. No doubt I could be made to look foolish about some details if people really want to. But the broad picture seems to be to be robust and I understand is confirmed by economists who admit that Hong Kong has stood up relatively well. They just have no explanation for it though the Hong Kong administration does point to its currency board system.

It is evidence relevant on a world-wide scale that while socialists would be unwise to tackle the market in commodities head on (regulation so that it is less unvironmentally damaging is another matter), there is room for major advances in social control of land and of finance. On a global level.

Leaving aside the howls about "reformism", why not?

Remember we have a world to win?

Let's make land and finance a priority.

Chris Burford


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