The Hong Kong model?

GCC states have much in common with Hong Kong, not least their desire to push through the downturn ahead of the rest of the world. But still the Gulf looks more West than the East.
The Hong Kong model?
By CEO Middle East
Wed 06 Jan 2010 04:00 AM

GCC states have much in common with Hong Kong, not least their desire to push through the downturn ahead of the rest of the world. But still the Gulf looks more West than the East.

The Thursday night Cathay Pacific red-eye from Dubai to Kai Tak  Airport, Hong Kong, is packed. Europeans and Chinese clamour at check-in, all on the hustle for an upgrade or at least an aisle seat.

I last made this journey in 1996, when Dubai was a different city from the sprawling metropolis it is starting to resemble today, and Hong Kong was owned by the British. So much change, then, but not to the demographic make-up of this queue.  Emiratis, in fact ‘Gulfies' in general, are still conspicuous by their absence.

We read all the time of the GCC's burgeoning trade links with China, and of course they are indeed getting stronger. China's economy is about to become, if it is not already, the biggest and most powerful in the world, and trading between the Middle and Far East makes a nice alternative for both sides to solely trading with Europe and America for a variety of reasons, political and pragmatic.

But in Hong Kong, this most magnificent and famous of cities, the Arab influence is not obvious. In London it is. In Geneva it is. In most major European cities, Arab banks and restaurants, for example, are plentiful these days. In fact, last time this correspondent was in London, every cab in the city seemed to be a moving billboard for an advertisement imploring anyone who cared to look to visit Dubai, or Abu Dhabi, or Bahrain, or Qatar.

In Hong Kong, the only evidence of Arab influence I could find, although admittedly I did not search it out in the short time I had there, was a little restaurant called Habibi in Lan Kwai Fong. Its website tells me it puts on belly dancing displays for its customers.

On Friday night, over dinner, I spoke to the manager of one the most famous and luxurious hotels in the city. He's been doing the job for the last fourteen years. I asked if he was seeing an increase in the number of Arabs staying in the hotel, or in other hotels there.

"Not really," was his response. He explained that the Middle East was still a largely untapped market, in tourism terms. With a diffident shrug he explained that people from the Middle East preferred to go to Europe and that it had been ever thus. Perhaps that might change, he said, but he didn't sound convinced.

But residents of Gulf cities could learn so much from visiting Hong Kong, not least from its valiant attempts at preventing a house price bubble burst like the one that has so afflicted Dubai over the past year.

Like most Gulf currencies, the Hong Kong dollar is pegged to the US dollar. With American interest rates being held down by the Fed to close to zero percent in an effort to get the economy going again, borrowing has indeed become incredibly cheap in Hong Kong.

Given that Hong Kong is doing just fine in the face of the greatest global economic downturn in living memory (two reasons: it is impressively self-sufficient and it enjoys huge investment from mainland China), low interest rates equate to something approximating free money.

When the crash first hit, Hong Kong property prices dipped some fifteen percent, almost in sympathy with the rest of the world. But this year, particularly  the second and third quarters, has seen them making impressive gains as ‘Hong Kongers' (they call themselves this, the same way a Noo Yawker is only secondarily an American) have in droves taken advantage of low interest rates to snap up bargains.Wealthy Chinese people in the mainland have also been busy buying. But the fear now is that if American interest rates are eventually raised, as inevitably they must be, cracks will appear in the market as buyers will be unable to meet their obligations.

John Tsang, Hong Kong's financial secretary is pushing for banks to increase the amount of money they demand from homebuyers applying for mortgages. The move is intended to stop the market being moved beyond the reaches of the elite, but it could easily backfire. Record numbers of properties on Hong Kong island are being bought for cash.

Making it harder for less wealthy buyers to get a foothold in the market by raising the mortgage capital requirements is unlikely to help them. It is very un-Hong Kong, I am told, to try to artificially control a market in this way; the territory has long prided itself on being an unapologetic bastion of blue-flame capitalism (the economy has been ranked the freest in the world for fifteen consecutive years by the Index of Economic Freedom).

But with prices having gained some 40 percent since January this year, and apartments now officially priced at only some ten percent beneath the peak prices reached before 2008's ‘crash,' the feeling is that something must be done. If Tsang can get it right, perhaps the GCC would be wise to study his methods.

When the British handed Hong Kong back to the Chinese in 1997, many who lived in the city, or had interests there, wondered what would happen. Hong Kong's commercial culture of economic bombast seemed at odds with the socialist realities of China's domestic economic policy, and it was widely expected that the party atmosphere that had long defined Hong Kong's energetic economy would come to an abrupt end.

Walking around the city, through the crowded streets around Central and Admiralty, or over the water, via the famous Star Ferry, in Tsim Sha Tsui, it is clear that no one has stopped partying.

The markets bustle identically as they did before the handover, the office workers still cram the streets on their lunch breaks, dodging trams, cabs and Rolls-Royces, and the energy of progress is still very much in evidence. In fact, now it all goes on beneath the two enormous International Financial Centre towers, one on the island side, the other on Kowloon. Dubai evidently isn't the only the city to have caught the international financial centre bug.

Judging from the quick survey CEO Middle East carried out on the streets of the island, commercial and cultural life has, if anything, improved since the British relinquished control. The Chinese promised they wouldn't change the ways things operated in Hong Kong until 2047, including the right to freedom of expression, and they have been good to their word. Even an annual protest to commemorate the famous uprising in Tiananmen Square is allowed to take place.

There are seven million people in Hong, 3.1 percent of whom speak English as an everyday language, 35 percent of whom speak it as a second language.

There are no cultural reasons to prevent more trade between the Gulf countries and the former British colony. Indeed, most impartial observers would argue that in terms of aspiration, the two regions have much in common - Hong Kong has just been doing it longer.

It would be facile to say that Hong Kong has laughed in the face of the various economic crises it has been hit by over the last decade and a half - the Asian financial crisis in 1998, the SARS outbreak in 2003, and now the global economic downturn - but certainly it has rolled up its sleeves and powered through them, as the GCC states fully intend on doing now, too. GCC trade links with this amazing city, then, could be a marriage of business as much as of minds.

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