(This essay was published in Hong Kong Economic Journal 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. Earlier attempts to do so have met with only limited success.

 

Hong Kong’s post-war economic success was built on immigrants who arrived from all over the world, especially the Mainland. But 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.

 

But this is clearly an underestimate of the number of emigrants originating from Hong Kong. Many emigrants from Hong Kong were born in the Mainland and would be classified among those born in China in the OECD statistics. Moreover, the descendants of Hong Kong emigrants who are born overseas would not be counted as foreign-born emigrants.

 

The Government has estimated that since 1980 some 800,000 Hong Kong residents have emigrated overseas. Among these, a significant proportion would not have been born in Hong Kong. If we include emigrants who left before 1980, the total number could easily exceed 1 million or about 15 percent of the resident population in Hong Kong today.

 

If we include their foreign-born descendants, the total number of Hong Kong originated population living abroad may be as many as 1.5 million, which would be about 20 percent of Hong Kong’s resident population. These are very high numbers when compared with Singapore and Taiwan.

 

The Singapore-born and Taiwan-born populations living abroad are much smaller at 150,000 and 480,000, respectively – or about 4 percent of Singapore’s resident population and 2.1 percent of Taiwan’s.

 

Clearly, Hong Kong’s population is much more mobile than either Singapore or Taiwan. What caused so many to leave Hong Kong? Some emigrants left after the 1966-67 disturbances and others because of 1997. What proportion of this emigration is politically motivated?

 

One can make a rough guess by looking at the statistics. Since 1980, the number of residents who have emigrated has been quite steady at 10,000 to 20,000 every year, except for an upward bulge in the decade leading up to 1997 (see Figure 1) when an additional 300,000 residents emigrated. It is reasonable to conjecture that this group left because of anxiety over 1997.  But it means that since 1980 some 500,000 residents left for economic reasons. It is likely that many of them found better opportunities overseas.

 

Within Hong Kong, approximately 16 percent of the resident population has tertiary education. This amounts to about 1.1 million persons. More than 56 percent of the Hong Kong born population living in the OECD countries are recorded as having tertiary education. Based on our earlier guestimate of about 1 million Hong Kong residents living abroad, and 1.5 million if we include their descendants, that means possibly 560,000-840,000 Hong Kong-originated individuals living abroad have tertiary education.

 

These are very substantial numbers that the Hong Kong government could target to improve Hong Kong’s demographic profile. But these people have settled in their new countries and the only reason for them to return is if and when they can find a significantly better opportunity here.

 

To successfully market Hong Kong to this group, the government must, first, identify areas with shortages of skills and talents. Second, it must assess the relative attractiveness of returning to Hong Kong, taking into consideration differences in the standard of living with these emigrants’ new homes and the possibility of narrowing any gaps. Third, the business and occupational barriers to returning must be identified and some of them should be removed or lowered.

 

I am sure there are many skills and talents that are in short supply here. Doctors and English language instructors immediately come to mind. I think most of us know what Hong Kong needs. Over the years we have become incredibly good at rediscovering these well-known truths again and again. Let us see if this time we will finally be able to walk the walk and not just talk the talk.

 

The situation in Hong Kong is becoming very worrying because the 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.

 

When the working age population grows older, it becomes less innovative because young people are more creative. Economic productivity will improve less rapidly. In 1981, 51.3 percent of the working age population (defined as age 20-64) was below 35 years of age. In 2011, this had fallen to 30.1 percent (see Figure 2). On the other hand, over the same period the proportion of the working age population aged 50 and above rose from 22.5 percent to 33.4 percent.

 

If a firm has an old workforce, it is less likely that the younger workers will be given much management opportunity because the more senior workers already occupy the top slots. Workers in higher positions shoulder more responsibility, have more interaction with other decision makers, and are in a position to see the larger picture. The higher one is in an organization, the more opportunity one has to gain experience that will be useful in starting an enterprise.

 

For this reason, the age structure of the working age population is potentially an important determinant of upward mobility and of entrepreneurship. In young firms, relatively young people hold even top positions. A young society provides more opportunity for the young and most creative to acquire the skills necessary for entrepreneurship. If there are few such opportunities, overall economic productivity suffers.

 

An ageing population also directly lowers GDP growth rates per capita because it increases the ratio of the 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 (defined as 65 or above) will reach 22 percent of our working age population. Japan reached this level 20 years ago in 1995. The timing coincided with the start of Japan’s now famous lost two decades when its economy began to stagnate. The two events are not coincidental but in fact intimately related.

 

Today, Japan’s elderly population is 47 percent of its working age population. By 2030, Hong Kong will reach this stage. And like Japan, this percentage will continue to rise until it peaks at 80 percent after mid-century.

 

From 2015, Hong Kong’s working age population is also projected to stop growing for the first time since the 1950s. This new development is expected to continue until the end of the century. Our government has finally moved, by proposing to delay civil service retirement age and encouraging more women to enter the labor force. These one-off measures will have some effect, but they 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 earlier Hong Kong emigrants? Time will tell. The real battle is not overseas, but at home. If the government fails again, then we know Japan is our future.

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