(This essay was published in South China Morning Post on 4 February 2015.)

 

Demographic factors are the most important drivers of Hong Kong’s long-term economic future. The Chief Executive’s Policy Address this year proposes several measures to increase the size and quality of our workforce. This is a welcome step to rebuild our adult working population lost through ageing and emigration.

 

Hong Kong’s post-war economic success was built on immigrants who arrived from all over the world, especially the Mainland. Hong Kong has also been a source of immigrants for many developed countries. In 2011, the recorded Hong Kong-born population in the Organization for Economic Cooperation and Development (OECD) countries exceeded 600,000.

 

This is clearly an underestimate as it does not include emigrants from Hong Kong who were born in the Mainland, nor the descendants of Hong Kong emigrants.

 

The government estimates that since 1980 some 800,000 Hong Kong residents have emigrated overseas, including those born outside Hong Kong. If we include emigrants who left before 1980, the total number could easily exceed 1 million or about 15 percent of Hong Kong’s current resident population.

 

If their children are included, the number reaches as high as 1.5 million – about 20 percent of the population.

 

These are very high numbers compared with Singapore and Taiwan, whose populations living abroad are about 4 percent and 2.1 percent, respectively.

 

What has caused so many to leave Hong Kong? Some left after the 1966-67 disturbances and others because of 1997, but these were not the only reasons.

 

Since 1980, about 10,000 to 20,000 residents have emigrated every year. An additional 300,000 emigrated in the decade leading up to 1997, likely due to anxiety over 1997. But that means about 500,000 of emigrants left for economic reasons. It is likely many of them found better opportunities overseas.

 

Many of these emigrants are well-educated. More than 56 percent of Hong Kong-born people living in OECD countries has tertiary education – about 560,000-840,000 individuals – compared with about 16 percent of people living in Hong Kong – about 1.1 million persons.

 

The educated overseas emigrants are a substantial population that the government could target to improve Hong Kong’s demographic profile. But that will only work if and when these people can find significantly better opportunities here.

 

To successfully market Hong Kong to this group, the government must, first, identify areas with shortages of skills and talents; second, assess the relative attractiveness of returning to Hong Kong, given the standards of living in emigrants’ new homes and the possibility of narrowing any gap; and third, remove or lower some of the business and occupational barriers to returning.

 

There is good reason for doing this because Hong Kong’s working age population is getting older and the number of retired persons is rising. Both trends spell serious problems for the future of our economy.

 

In 1981, 51.3 percent of those aged 20-64 was below 35 years of age. By 2011, this had fallen to 30.1 percent. Over the same period the proportion of the working age population aged 50 and above rose from 22.5 percent to 33.4 percent.

 

An ageing population provides fewer opportunities for young workers to fill management positions and acquire the skills necessary for entrepreneurship. The economy also becomes less innovative because young people are more creative. Economic productivity is hindered.

 

At the same time, GDP growth rates per capita are directly lowered because of a higher ratio of retired to working age population. Standards of living may fall and can only be maintained by running down savings.

 

In 2015, Hong Kong’s elderly population (aged 65 or above) will reach 22 percent of our working age population – the same level as Japan in 1995, which coincided with the beginning of stagnation in Japan’s economy.

 

Hong Kong’s working age population is also projected to stop growing this year for the first time since the 1950s. Our government has finally moved, by proposing a delay in the civil service retirement age and encouraging more women to enter the labor force. But these one-off measures will not change the negative demographic trend.

 

Will the government be able to overcome protectionist barriers to successfully attract skill and talent from abroad, including the children of Hong Kong emigrants? Time will tell. The real battle is not overseas, but at home. If the government fails, then we know Japan is our future.

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