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(DV) Choi: Hong Kong's "Free Trade Market" -- Someone Pays







Hong Kong’s “Free Market”: Someone Pays
by Chohong Choi
March 10, 2006

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A couple of new elements have been discovered in recent years. Go to a popular search engine (like Yahoo! or Google) and type in “Governmentium”. Click on one of the links on the first page of results to find its description. Governmentium is the heaviest element yet to have been discovered. It has one neutron, 12 assistant neutrons, 75 deputy neutrons, and 224 assistant deputy neutrons for an atomic mass of 312. The 312 particles are held together by forces called “morons” and surrounded by weak, interactive particles called “peons”. Governmentium has a delaying effect on every reaction with which it has come into contact. Its mass increases over time because its subordinate neutrons undergo reorganization instead of decay, and each reorganization also causes some morons to become neutrons, thereby forming “isodopes”.


The second element is remarkably similar to the first. On the same search engine, type in “Corporatium”. It has a similar makeup to Governmentium, but the same atomic mass of 312. Its particles are also adjoined by morons and encircled by peons. Corporatium also has a delaying effect on anything it comes into contact with, yet its mass also increases over time and its reorganizations also result in isodopes being formed.


When morons in Governmentium and Corporatium reach a certain number and concentration, a “Critical Morass” is formed. Although the scientists who discovered the elements did not speculate on this, it is possible that when the two elements come into contact, which is often, they exchange morons quite freely, as if there is a revolving door between them.


Two Sides of the Same Coin


To most people, anything with the word “free” in it sounds good. The terms “free trade” and “free market” conjure up images of a system that operates uninhibited by government interference. According to their proponents, a certain “invisible hand” guides the actions of people and organizations so that everything turns out all right.


But is that how the wheels of the economy turn -- through the actions of an almighty invisible hand? For a quick and simple analogy, let’s delve back into the Star Wars films. Most fans with more than a passing knowledge of the prequels (Episodes I-III) know that they began with a trade dispute. The Trade Federation, a mega consortium of businesses that was angered over being taxed for trade routes it created and monopolized, decided to invade Planet Naboo in protest after being urged to do so by a mysterious Darth Sidious, who was manipulating both sides for his own ends. Due to its immense wealth, the Trade Federation was able to gain membership and support in the Galactic Senate as if it were a member world, plus acquire military hardware to launch its invasion.


In time, the Trade Federation and other syndicates that also had very commercial sounding names (Banking Clan, Commerce Guild, Corporate Alliance, and Techno Union) banded together and formed the Confederacy of Independent Systems (better known as the Separatists). Each syndicate had access to considerable armaments, and they all pooled their resources together to launch a war that threatened to tear the Galactic Republic apart -- all in the name of unfettered capitalism.


The Separatists even named one of their spaceships Invisible Hand. Its presence was anything but invisible, as it bristled with weapons from fore to aft and was commanded by a General Grievous, a merciless leader and the Separatists’ top attack dog, whose four hands were each capable of wielding a mean-looking light saber with lethal skill. When the Separatists looked to remake that galaxy far, far away with their professed “free market,” “free trade” agenda, they relied not on some abstract invisible hand, but on the more concrete military muscle at their disposal.


“Do I look like I need an invisible hand?!!” (From Starwars.com.)

The marriage of state and mercantile interests is not just found in the Star Wars universe, but here on Planet Earth as well. The journalist Thomas Friedman once said that: “The hidden hand of the market will never work without a hidden fist. Markets function and flourish only when property rights are secure and can be enforced, which, in turn, requires a political framework protected and backed by military power.” [1]


We can go one better than Friedman: the hidden hand will never work without a very visible fist. It is often very obvious to those whose markets (and sometimes possessions) are opened up and expropriated for the benefit of corporations that want to exploit its human and natural resources, while it is often quite invisible to consumers in developed countries for whose benefit, and in whose name, it is operating, and whose taxes sustain it. Laws and courts also exist to protect commercial interests, but it is the presence of armed force that underwrites both.


The feds, the firm, and the fist exist in a mutual triangle in which each entity feeds and feeds off of the other two. Governmentium is Corporatium, and vice versa. They are two sides of the same coin.


Two Coins of the Same Side


A World Trade Organization (WTO) conference was held in Hong Kong in December 2005 to promote freer trade, or so they said. Hong Kong was deemed an attractive place to host such an event because it has been the poster boy for how any society can reap the rewards if it opens up its economy, or so the free trade crowd would claim. This article does not aim to examine what occurred during the conference, but it does aim to question the popular belief that Hong Kong is where it is today because it practiced free trade and free market economics.


For 12 years running, Hong Kong has been named the “world’s freest economy” by a certain American think tank. [2] Despite this, its business crowd continues to complain about how its government interferes with the “free market” through its regulations and bloated bureaucracy. They like to foster the impression that they and the government are mutual adversaries with conflicting interests rather than partners in this diarchy of private-public enterprise. [3]


From its beginnings as a British colony, Hong Kong has always operated on behalf of business interests. That was why the British secured control of it in the first place in 1841. [4] Prior to that, the Qing Dynasty of China had placed many restrictions on trade with outsiders. To make a long story short, the British, after fighting and winning a war with the Chinese, were given Hong Kong Island as a prize. At first glance a “barren rock,” Hong Kong had an excellent harbor, was strategically located along the South China Coast in relation to Great Britain’s other Far Eastern commitments, and was still close (but not too close, so as to escape the prying eyes of the Qing authorities) enough to the principal international trading center in Southern China -- Canton (today Guangzhou). [5]


In the early 19th Century, Britain needed overseas markets for her expanding industries. China, on the other hand, did not need much from the rest of the world, or so she thought. But the British discovered that the drug opium, which was grown principally in India and Turkey, was prized by Chinese users because it was so highly addictive, and therefore banned in China since the 17th Century. But enforcement of this ban was spotty. [6] British merchants, with the connivance of their government and the cooperation of their American and even Chinese counterparts, engaged in the lucrative business of shipping opium to China, and in the process created a growing population of opium addicts in the Celestial Empire, as China was known. [7] Trade can hardly be called free if those who suffer from the use of such a damaging commodity are taken into account. The drain that opium had on China’s treasury was quantifiable, but not the harm it inflicted on the health and dignity of its victims.


Not surprisingly, those companies that were involved in the opium trade and are still around today have largely and wisely kept mum on their profiteering from the drug. It is hard enough for them to publicly share the credit with the big G for playing a major role in their success, and it will be a snowy day in Hong Kong before they agree to share the responsibility for this unsavory chapter in their corporate histories. [8]


The People Sometimes Strike Back


The visible fist does not just operate abroad in times of war; it sometimes manifests itself at home to chastise those who are less than enamored with the “free market.” Many Hong Kong people today, conditioned to believe that the British were benign imperialists and the “free market” they introduced to Hong Kong has always lifted everyone up, may be surprised to hear that some of their forebears did not see things that way. The rest of Hong Kong found out who had not been sharing in the spoils in January 1922 when its seamen, who were Chinese, struck against their shipping companies, which were mostly white-owned. As seamen, they traveled abroad frequently, and saw how their wages paled next to those of their Western counterparts. Moreover, their pay had not kept up with rising prices since the end of World War I. When their employers rejected their demands for a wage hike three times, the seamen walked off their jobs.


At first, the strike involved only 2,000 seamen, and the government, attempting to suppress it, declared martial law in Hong Kong just three days after it began. The strikers’ organizations were deemed illegal and their leaders were put under surveillance or arrested. But the strike soon spread to include other workers like coolies, deckhands, domestic helpers, and engineers, which expanded the walkout to 40,000 workers.


The strikers were fortunate to have the support of the Chinese Southern Government in Canton (China was quite fragmented at the time, and the British recognized the Peking Government as the legitimate government of China), which donated to their cause, along with workers in other parts of China, including unemployed laborers, and even some in nearby countries and territories. This and the strikers’ propaganda countered the companies’ attempt to replace the strikers with scabs. When the coolies’ employers tried to divide and conquer by offering them wage increases, the coolies refused to budge unless the seamen also received theirs. More workers from Hong Kong joined in the industrial action. Some ran off to China to deprive employers of potential labor. In desperation, the government imposed a lockdown on the city and met any attempt to cross the border with force, which only fueled the strike. By early March, it numbered 120,000 workers (most of the city’s workforce). Martial law and police brutality (some strikers trying to flee north were fired on and killed) had failed to break it.


Violence by the authorities meant that the government and employers had lost the moral high ground. So the organizers took advantage of the moment to end the strike and resume talks. The seamen won their wage increases, the release of their leaders, and recognition of their organizations. It was the first big victory by Chinese labor over foreign companies, and it was possible because workers from Hong Kong and the region united in an unprecedented display of solidarity. The victory even touched off a brief alliance between the Nationalists and fledgling Communists (a far cry from their determination to destroy each other later on), who both saw the potential of the labor movement. [9]


Both the Nationalists and Communists would eventually side with business interests (the former first, and the latter much later), and Hong Kong has remained a business friendly city. Hong Kong people are often stereotyped as selfish and money-hungry [10], but 84 years ago, enough of them banded together to fight for and win some economic justice for the sake of survival.


There was no invisible hand at work during the strike. The only limb present was the long arm of the government, which was pitted against the tremendous organizing efforts of the strikers. This time, labor triumphed, which put a lie to the notion that the British had always taken care of their Hong Kong subjects by taking a hands off approach and letting the “free market” work. In reality, imperialists have always taken care of themselves and their privileged constituents [11], and have come down hard on anyone who tried to disrupt this arrangement.


“British colonial rule in Hong Kong was first and foremost meant to serve British interests. This basic consideration does not mean the British were opposed to their presence being beneficial to the local Chinese residents,” [12] wrote a historian of Hong Kong. Yes, but beneficial since when? It shall be seen that the gains made by Hong Kong people, especially since the mid-20th Century, were due to factors that were more profound than stable British rule and “free trade”.


Mother’s Milk


Hong Kong was an anomaly for some 30 years after World War II. Two movements at the time -- anti-imperialism and Communism -- were hot, but Hong Kong bucked both trends. It remained a colony and did not become Communist. It even attracted large numbers of people from places that became independent (the Philippines), were Communist (China), or both (Vietnam).


Since the war, Hong Kong has been suckled on the breast of its neighbor to the north -- The People’s Republic of China (PRC) -- from which it benefited directly and indirectly. Indirectly, because if it weren’t for the Communists, who chased many industrialists from Shanghai to Hong Kong at the end of the civil war between the Communists and Nationalists in 1949, Hong Kong’s postwar development would have likely taken a considerably different path. Before World War II, Shanghai was widely considered China’s most cosmopolitan city, with Hong Kong playing second fiddle. Today, the roles are reversed, although Shanghai is trying hard to catch up.


What many people don’t know about is the PRC’s more direct role in Hong Kong’s postwar development. Hong Kong has long been the beneficiary of food from China. This continued to be the case after the Communists took power, when the colonial Hong Kong Government struck a deal with them. China would earn some much-needed revenue by selling Hong Kong most of the food and water (both subsidized) consumed in the territory. More importantly, Hong Kong remained its most significant link to the outside world. Concurrently, the colonial government benefited by building subsidized housing for the masses and collecting rent on it. These actions satisfied two of the most important needs of the average Hong Kong person -- food and shelter -- which helped the colonial government keep things more or less peaceful in Hong Kong. By extension, its masters in London were able to hold on to a prized territory (arguably the most valuable possession left in the British Empire after India became independent) and continue taking part in milking it. Hong Kong employers gained a competitive advantage by being able to keep wages low, while reduced-price food and housing made it a little easier for Hong Kong workers to make a living. [13]


This was a case of two principal Cold War antagonists straying from their respective principles, and it was due largely to Hong Kong. In the years after World War II, both Britain and the newly proclaimed PRC were at least ostensibly committed to promoting or combating capitalism or Communism. When the Communists took control of China in 1949, their Soviet allies urged them to move on Hong Kong because the Chinese were morally entitled to regain territory that had been theirs. But the Communists balked. They realized that a Hong Kong in British hands would be able to continue its role as an entrepôt (a place that imports, stores, and re-exports goods) for the PRC and help it earn some much-needed cash. [14]


Britain actually recognized the PRC in early 1950 -- just three months after it was proclaimed. This recognition was never rescinded during the Korean War, when Britain and China fought on opposite sides. British diplomats were even allowed to remain in China during the conflict. After the ceasefire in 1953, the United Nations and the U.S. imposed their own embargoes on China. [15] The U.S. was so adamant that not a single item of PRC origin enter American shores that a food like shrimp, for example, had to not only have been caught in Hong Kong waters, but had to have spent its entire life in them. Otherwise, the shrimp could be deemed Communist infiltrators! [16] (Imagine where Wal-Mart would be if this policy were still in effect today.)


Once Hong Kong’s role as an entrepôt was jeopardized, it reinvented itself as a manufacturing base. Mainland industrialists who fled to the territory were joined by many more less affluent compatriots who were desperate to escape the chaos of the civil war in China. The latter group formed a ready pool of cheap labor for the factories that were about to be set up in Hong Kong. But the tide of immigrants swamped Hong Kong’s inadequate housing base, so eventually the government stepped in and became the biggest landlord in the territory in terms of the number of tenants it housed. [17]


The embargo against China was not airtight, but it reduced trade between Hong Kong and China to a fraction of its pre-embargo level. China partly made up the slack by trading with the Soviet Union, and the British ignored the demand of their American allies to enforce all provisions of the embargo. Hong Kong’s economy depended greatly on trade with China, and the British feared instability in the territory if the embargo was fully enforced. (But they did accede to American wishes to curtail civil liberties, step up border patrols, and expand their military presence in the territory.) [18]


In short, British and Chinese behavior towards Hong Kong during these years was more pragmatic, while that of their senior Cold War partners, the U.S. and the Soviet Union, respectively, was more ideological. It was this awkward state of affairs, not free trade, that worked in Hong Kong’s favor. It was one of the four “little dragons” (along with Singapore, Taiwan, and South Korea), together with one “big dragon” (Japan), that were the first places in postwar Asia to see their economies recover and then prosper.


If one looks at a postwar map of Asia, one can see what these five dragons had in common. All of them were neighbors to Communist or leftist states. Hong Kong bordered China. Singapore was sandwiched between Malaysia (which battled a Communist insurgency) and Indonesia (whose Sukarno government leaned left). Nationalist Taiwan defiantly faced the PRC across the Taiwan Strait. South Korea shared a peninsula with North Korea, and was also in close proximity to China and the Soviet Union. Japan resumed her interwar status as a bulwark against Communism in the East (albeit more economically than militarily this time). While each dragon had other advantages that helped it in its development, a Communist or left-leaning presence just beyond (and sometimes within) its boundaries likely played a role in ensuring that each dragon strengthened itself economically and the bulk of its citizens shared in the gains so that they would think more about getting rich than about revolution.


Hong Kong’s British masters had an additional dilemma. After Singapore became sovereign, it was the only dragon that was not an independent state (although Taiwan is also technically not independent). As adherents to a practice that was being dismantled in the decades after the war, the British knew they were only able to hold on to Hong Kong mainly through the goodwill of the Chinese. The PRC supplied the bulk of the territory’s food and water, and could humiliate the British by simply withholding one or both necessities. The Chinese knew they had this leverage, and occasionally provided clandestine support for civil disturbances in Hong Kong. [19] But Hong Kong was their cash cow, and they were careful not to disturb it too much.


Even during the disastrous Great Leap Forward, when millions of Chinese starved, the food and water continued to flow into Hong Kong. Apparently, Hong Kong received more than enough of it, because its people actually tried to help relieve the famine by shipping food north to their relatives -- most of which originated in China! [20] To this day, China continues to send much of its higher quality produce abroad, including Hong Kong, because it can fetch more money there. [21]


Sardine Class


Let us examine the issue of housing in Hong Kong some more because the government’s status as the territory’s biggest landlord already nullifies the myth that it operates in a free market. Because of Hong Kong’s small size and lack of level ground (3/4 of the territory is mountain), finding space to build here has always been a challenge, and more so when its population swells by 100,000 per month, as it did for a while after World War II when the civil war in China resumed and lasted another four years. [22]


Most of these refugees to Hong Kong, unable to secure more formal accommodations, lived in makeshift shelters (more infamously known as “shanties”) built on government land, on rooftops, or even offshore on boats. [23] They were squatters, and paid no rent on their shanties unless it was to the “triads,” organized crime syndicates that controlled large swathes of the land and abided by their own set of rules, or to corrupt officials to look the other way (the government was rife with corruption for some 30 years after the war). “To allow triads to control things makes it easier for us,” confessed an official. [24]


And what of the reduced-price housing gave Hong Kong an edge in its postwar development? This was still true, but the penalty was an even bigger reduction in living space because multiple families (actually, most new immigrants to Hong Kong during this period) were forced to cram into tenements (public housing was just getting started) meant for just one family due to the landlord and lead tenant practice of subdividing and subletting units, respectively. Those who were priced out of private housing after redevelopment (more on this later) either crowded into other private tenements (which were usually in worse shape) or became squatters. [25]


At first, the government was lethargic about dealing with shanties, but a major fire in one shantytown forced it to act. It cleared the land, built public housing on it (or leased some tracts to private developers), and rented the units to those displaced by the fire. These early public housing units -- 86-120-sq. ft. econo-boxes with no electricity, kitchens, or bathrooms of their own and said to be modeled after prisons -- were quickly welcomed by their new tenants. Although crude, they were proof from the elements and legal, which gave their tenants a sense of belonging. [26] Besides, their monthly rents were actually less than those for shanties. [27]


The government made it clear that its public housing program did not arise out of compassion. [28] One retired official realistically summed up the program: “The resettlement program of the fifties was not a housing program for the poor. It was a means to clear land for development. You could not apply for a resettlement flat. You were offered one if your hut was about to be pulled down.” [29] Thus, being poor or even homeless did not qualify one for a public housing unit. Hong Kong operates under the leasehold system, which means that the government owns all the land (called “Crown Land” under the British). It had image and economic motives for carrying out resettlement. After sanctions were imposed on China, its own revenues had taken a hit, and the fire forced it to commit its limited resources to provide relief. But for the cost of two weeks’ relief, it could build a public housing block with few amenities and rent its units out to the fire victims rather than spend money on their welfare. Still, the government had to acknowledge that most squatters were not leeches. They worked, which made them a vital part of the economy, so the public housing had to be built as close to their jobs as possible. [30]


The government sometimes carried out land clearances in a less than noble manner. It was believed to have intentionally set fire to some shanties to clear them faster. (Squatters and the triads were also suspected of using this measure -- the former to obtain public housing, the latter to evict squatters so that they could sell the squatting rights to other squatters.) Crooked officials doled out the limited number of housing units unfairly. The problem was exacerbated by the government’s encouragement to landlords of private residences to demolish them and build taller ones to house Hong Kong’s burgeoning population. As an inducement, the government slapped rent controls on un-redeveloped properties. Landlords who redeveloped could hike their rents, while the government could expect higher premiums for re-leasing its own land. Tenants who refused to move could see their dwellings condemned, either through payoffs by their landlords to unscrupulous officials to declare them unsafe, or through deliberate damage to the premises by hired hands. The triads could also be summoned to coerce tenants into moving out. Landlords who did not bite were caught in a double whammy of seeing their buildings turn into slums, while lacking the means to maintain them because their rent proceeds were inadequate. [31]


Newly evicted tenants turned squatters were vulnerable to government and triad intimidation. To make things worse, the government added that any shanty built after 1954 would be demolished without compensation to their residents. Shantytowns continued to exist, as long as the triads and some government agents were paid off. Such was the level of corruption in Hong Kong at this time, and it extended to many walks of life. Dishonest officials (the police especially) were frequently in cahoots with the triads to exploit the powerless. The 1954 law was eventually changed after some honest officials fought to overturn it some ten years later, and it was just as well. By 1964, the squatter population had more than doubled, and the instability that could have occurred had the law been fully enforced in its original form would have undermined Hong Kong’s development. [32] Rehousing the squatters was harder and took longer. At the start of the 21st Century, a few shanties were still visible around Hong Kong.


In time, better leaders came to administer the government, and it began to crack down hard on corruption, the effect of which boosted the housing situation, not to mention the economy. [33] As the shantytowns gradually disappeared, public housing gradually improved. (Subdividing and subletting are still practiced in the private sector, though.) As more people gained comparatively secure roofs over their heads, they could afford to seek other ways to better themselves. The government’s role as landlord to so much of Hong Kong’s population has had its bumps along the way, but it is hard to deny that it had to play a role. When too many people lack something as basic as proper shelter for too long, they become unpredictable. That is not good for business.


Life in the early public housing estates was crowded, dirty, lacking in privacy, and sometimes dangerous, but it also had its satisfying moments. Everybody knew each other, greeted, mingled, or played with each other, and even shared leisure facilities. Most people were poor, but they were hardly miserable. A community spirit was present, and sometimes it inspired residents to form patrols to take on the drug addicts and gangsters who had infested their estates. Even now, some older former and soon-to-be-former residents of the earlier estates wax nostalgic when they recall their days in public housing -- days that are slowly fading into the history books. [34]


Young and old watching TV in an early public housing estate (Hong Kong Government Information Services) [35]


Always Inflated Prices. Always.


"There isn't one grain of anything in the world that is sold in a free market. Not one! The only place you see a free market is in the speeches of politicians.”

-- Dwayne Andreas (former CEO of ADM) [36]


Not to mention the proclamations of big business, the sermons of economists, and the broadcasts of the mass media. When they sing the praises of the “free market,” one has to wonder if they fully believe or practice what they preach. Mr. Andreas did not, that much is clear. As head of one of the world’s largest food production companies (the “Supermarket to the World”), he buttered up to the power elite in Washington with campaign donations in return for favorable legislation and a blind eye when ADM fixed prices on some common food ingredients.


It looks like ADM and Hong Kong’s key corporate players take their cues from the same playbook. To see how, we return to the aforementioned food and shelter. While Hong Kong’s staples have been subsidized and about half of its population continues to live in public housing, a rising standard of living since the end of the war has led to demands for more luxurious forms of food and housing. That is where supermarkets and the private property market come in.


Let us start with food. In accordance with Chinese tradition, Hong Kong people usually prefer fresh food, although changing lifestyles and rising incomes in recent decades have led to a growing acceptance of more opulent, Western, processed, and preserved foods. This is where supermarkets entered the fray, because until then, the food retail scene had been dominated by the “wet market” (an assembly of small merchants selling fresh food in an open or closed area) and mom-and-pop grocery stores. Today, many mom-and-pop operations have been driven out of business by supermarkets, and wet markets, while still dominant (because Hong Kong people still love fresh food), have been gradually losing market share to the supermarkets (in spite of a brief comeback during the recession a few years ago [37]).


Wet markets are also notorious for being damp, dirty, and smelly, while supermarkets seem brighter, cleaner, and less malodorous. More recently, supermarkets have begun to threaten what had been the wet markets’ exclusive domain -- fresh produce -- which bodes ill for wet markets. Adding to their problems is the buying power of the supermarkets (which allows them to undercut wet market prices [38]) and some diseases (like avian flu) that are associated with live animals being sold as food. If the power of the supermarkets continues to increase, it may be a matter of time before the wet market becomes a relic of the past.


In late 2005, most wet markets, which had hitherto been run by the government, were privatized under a huge real estate investment trust (REIT) offering. [39] It remains to be seen if this new arrangement will revitalize the wet market sector. But some still think the government has to step in and enact a competition law to level the playing field for smaller businesses. [40] Not only is it slow to address the near duopoly (a combined 70 percent [41]) in the supermarket sector, the government across the border has appointed just one company to oversee the import of fresh poultry and one to handle the import of fresh pork and beef from the Mainland into Hong Kong. Many brand name products sold in Hong Kong also have an exclusive importer. [42] Technically, the entry of goods into Hong Kong is not a problem, since there are relatively few restrictions on what could be imported, but it is another story with their distribution. Whoever controls the distribution (in this case suppliers and large retailers), controls the prices.


Although supermarkets still hold a minority of Hong Kong’s food retail pie, rare is the Hong Kong household today that does not have a single prepackaged food item from a supermarket in its pantry. It is no surprise, then, that in the grocery category, suppliers who are eager to get their wares onto the limited shelf space of Hong Kong’s tiny supermarkets have taken to bribing the buyers for these chains. This gives the buyers a lot of leverage, and some of them were recently charged with demanding (extorting?) more than HK$100,000 (almost US$13,000) each month to grant the bribers an edge. The suspected greed of the buyers eventually compelled one supplier to report this corrupt game to the Independent Commission Against Corruption (ICAC), which is Hong Kong’s anti-graft body set up in the 1970s to combat the practice. [43]


In a competitive grocery market, suppliers would have less incentive to resort to bribing, since the lower profit margins due to greater competition would make bribery too costly. [44] But this may not be the case in a place where two chains have all but cornered the supermarket sector. (Now had the bribes been paid to the supermarkets instead of their employees, they would have been legal, and such “shelf space” charges would be passed on to consumers. [45]) If China’s food to Hong Kong is still subsidized, the subsidies could be shrinking or losing their value with each passing year because the prices of many foods are going up just about every year. Even when Hong Kong underwent deflation during the early part of this decade, supermarket prices jumped, which only fueled suspicions that the two chains were fixing prices. [46]


If the supermarkets were merely suspected of fixing prices, some food manufacturers and distributors boasted of it very openly. Last year, after agreeing with their suppliers to raise prices on their products, Hong Kong’s noodle makers boldly advertised the decision in the newspapers. Or take French retailer Carrefour, which tried to sell for less than what its suppliers wanted, thereby provoking their wrath, and had to quit Hong Kong after only four years. With only four stores in Hong Kong, Carrefour could not exert the same kind of influence on its suppliers like the two major supermarket chains. Although it provided Hong Kong’s Consumer Council with the names of suppliers that had pressured it to not go below a set price, the Consumer Council could not do anything about it without a competition law, even after some of those accused admitted guilt. [47]


As the world’s second largest retailer, Carrefour has held its own against top seed Wal-Mart in other parts of the world. Both would be considered the Death Stars of their industry, but both have been proton torpedoed by tiny Hong Kong, which, with its deeply entrenched hierarchy of retailers and suppliers, has proven to be a titanium nut to crack. It is a different story across the border, where both are competing fiercely with other major chains for the hearts and renminbi of the PRC’s 1.3 billion potential consumers. Imagine two multinational companies, each a ruthless competitor, being shut out of “the world’s freest economy,” while thriving in a country that was ranked No.111 in economic freedom by the same think tank that ranked Hong Kong No.1. [48] Strange things happen when capitalism gets in bed with Communism.


In response to criticism about their practices, the supermarkets, manufacturers, and suppliers utter the same, hackneyed line: they give the public what it wants. But when did the public demand fewer choices and higher prices for groceries, especially in the midst of a recession?


As for housing, there is no free market here at all. The government, as mentioned, is the city’s biggest landlord, and in the private sector prior to the 1997 Asian Financial Crisis (AFC), just four developers controlled over half the new housing market, with one commanding a quarter of this market. [49] Property is a huge factor in the Hong Kong economy. As mentioned, the government owns all the land in the city. When developers “buy” tracts of land, they are actually leasing it (the leasehold system). This stemmed from Hong Kong’s status as a free port (no taxes on most imports) and the lack of support, except military, from London. [50] When Hong Kong was returned to China in 1997, its new government continued this practice. Revenue from land sales is how the government obtains the bulk of its income, as taxes are low and the tax base is small. Doing property in the constricted confines of Hong Kong is why the government and developers are willing to continue narrowing its famous harbor and flattening its mountains. That is the only way they can find new land on which to build.


But even the government has been victimized by the anti-competitive practices of the real estate sector -- a sector it has nurtured and whose representatives are common in its ranks. Last year, seven contractors tasked with supplying steel gates for its public housing estates were cleared of conspiring to fix bids, even though they had admitted doing so. [51] Such a practice is not illegal in Hong Kong, and these contractors even “have ready access to the ‘business-friendly’ government which they themselves cheated,” complained a local journalist. [52]


In Hong Kong, food and shelter are tied to each other more closely than in most other places: its top two supermarket chains are part of conglomerates that also count real estate among their investments. Naturally, properties owned by these companies will host a supermarket owned by the same company, and rent would not be a problem, which puts competitors (as Carrefour found out) at a serious disadvantage. If that is not enough, some properties fleece their residents by bundling services, such as internet access, offered by a sister subsidiary. This forces residents to pay for something they may not want, and denies them the freedom to shop around because rival companies are not allowed into the estate. [53]


Life is good when Big Brother is on your side, and it has been great to Hong Kong’s developers. When they generate big profits from their properties, the government can demand higher bids from the limited number of contenders for its land leases. It is a win-win situation for both. Investors have never soured on real estate in Hong Kong, not even after the AFC. Such a lack of competition and concentration of clout in so few corporate hands prompted an editor of that socialist rag The Financial Times (notice how its paper is pink) to remark: “Only in Hong Kong does authority bow before property developers as demigods, deferring to their wisdom on civic issues…The biggest obstacle to progress is not its communist masters to the north. It is the bosses of its peculiar brand of corporatist capitalism who call the shots at home.” [54]


Defenders of the status quo say it is the “invisible hand” at work. Yet, the man to whom the concept of the “invisible hand” is attributed, Adam Smith, would probably be break dancing in his grave if he knew of the collusion between big business and government in Hong Kong. It was Smith himself who warned of the “special interests” of the “landed, monied, manufacturing and mercantile groups” whose interests are “never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.” [55]


The progeny of those special interests that Smith warned against still pay homage to him, but it is another (albeit fictional) A.S. whom they would rather emulate -- Anakin Skywalker after he is rechristened Darth Vader and starts to wipe out the Separatist leaders on Mustafar. Businesses talk competition, but the biggest among them always aspire to beat the Sith out of their opponents. They may have catchy slogans to entice the public, but “Do not hesitate, show no mercy” is how they want to operate. Business literature constantly makes analogies to war, and in war, the objective is to destroy your enemy, not battle him to a stalemate. It is harder to accomplish this in the real world than in a movie, but for some sectors of Hong Kong’s economy, its trade federations have come pretty darn close.


Be Careful What You Wish for


Business always speculates on how much better it would be if government would just get out of the way and let free enterprise do its thing. It longs for some mythical time in the past when the businessman was on his own and things worked out fine. [56] It sure hopes not. For it is the biggest user and beneficiary of public facilities like the courts, education, fire services, hospitals, infrastructure, the military, and the police. [57] Not only does business rely on these resources, its employees and customers do too. Also, business utters nary a word when the government goes to bat for it by enacting favorable legislation and signing trade deals with foreign countries. It knows who hold the keys to power, and spares no effort to ingratiate itself with these movers and shakers, as well as to find as many backers as it can to represent its interests in the government.


It is not always a bad thing that Hong Kong’s economy is not as free as advertised. Its public facilities and regulations help ensure stability in the city and make it a livable and investable place. That is how a strong community is built. Hong Kong still suffers from crowdedness, pollution, stress, and a widening rich-poor gap, but its public sector, while not without fault, has succeeded more than it has failed. Even as Hong Kong’s business sector continues to preach the advantages of the “free market,” it is silently thankful for (just to name a few) its affordable public healthcare, which releases it from straining its resources to provide its employees with basic health coverage like employers in the U.S., and for its public safety measures, which spare it the expense of having to hire high-priced private security contractors to protect its assets à la post-Katrina New Orleans.


If Hong Kong was chosen as the site of the last WTO conference because it appeared to practice free trade and free market economics better than anyone else, then that makes sense. Free trade talks and deals are mostly razzle-dazzle anyway, as those players who can afford to flout the terms of any agreement do so with near impunity. Insiders and those at the short end of these pacts know better. Markets and trade are never free. Someone reaps the rewards, someone pays for the rewards, and someone certainly pays for its consequences.


If the closest thing to a truly free market is what you seek, then Hong Kong is not it. That place, according to one journalist, would more likely be Somalia. [58] But there is no invisible hand at work in Somalia. If anything is invisible, it would be a functional national government, which has not been seen since 1991 (hence, no government regulations), as well as foreign aid (thus, no strings attached). Private enterprise exists in Somalia, and some of it works quite well given the circumstances. But even those in the private sector await the return of a working central government, which can help ensure stability and provide the framework for a smoother operation of society. [59] Until then, rules are made by word of mouth and usually enforced at the point of a gun (the visible fist).


Any chance that the next WTO conference will be held in Mogadishu? 


Chohong Choi has lived in Hong Kong and New York, and can be reached at: a9591321@graduate.hku.hk.


Other Articles by Chohong Choi


* Revenge of the Shift Worker




[1] Thomas L. Friedman, The Lexus and the Olive Tree, rev. ed. (New York: Farrar, Strauss & Giroux, 2000), p.443.


[2] Dennis Eng, “12 Years on, HK Still Freest Economy,” South China Morning Post (SCMP), January 5, 2006, p.A3.


[3] Jan Morris, Hong Kong: Epilogue to an Empire, The Final Edition (London: Penguin Books, 1997), p.237.


[4] An early beneficiary of the British seizure of Hong Kong was Jardine Matheson (aka Jardine’s), whose founders persuaded the British Government to use force to open up China to free trade (see Morris, p.23-24).  Jardine’s participated in the opium trade and today has interests in various industries, including supermarkets. (One of the two major supermarket chains in Hong Kong is a Jardine outfit).  It was also the subject for a series of James Clavell novels.


[5] Morris, p.24-25.


[6] Frank Welsh, A Borrowed Place: The History of Hong Kong (New York: Kodansha International, 1993), p.35.


[7] Welsh, p.43.  Americans involved in the opium trade included Warren Delano, the grandfather of a future president.  See Geoffrey C. Ward & Frederic Delano Grant, Jr., “ ‘A Fair, Honorable, and Legitimate Trade,’ ” American Heritage (August-September 1986), p.49-64.


[8] According to the late Martin Booth in his work The Triads: The Chinese Criminal Fraternity (London: Grafton Books, 1990), p.47, the roll call of companies included Dent & Co., Butterfield & Swire (today the Swire Group), Hutchison & Co., and Jardine’s.  In 2000, however, Swire sued a Japanese writer and his publisher for identifying it as an opium merchant in his novel.  The writer agreed to change the name of the company in future printings.


[9] (1) Jean Chesneaux, The Chinese Labor Movement, 1919-1927, trans. H.M. Wright (Stanford, CA: Stanford University Press, 1968), p.40, 180-185.  (2) Welsh, p. 369-371.


[10] To their credit, Hong Kong people were rather charitable in their response to the December 2004 tsunami.  On a per capita basis, their generosity outstripped that of Americans.


[11] Adrian Hamilton, “Empires Always Serve the Rulers, Not the Ruled,” The Independent/UK (rpt. Commondreams.org), January 10, 2003.


[12] Steve Tsang, A Modern History of Hong Kong (Hong Kong: Hong Kong University Press, 2004), p.197.


[13] (1) Louis Augustin-Jean, “Urban Planning in Hong Kong and Integration with the Pearl River Delta: A Historical Account of Local Development,” GeoJournal 62, nos.1-2 (January 2005), p.4.  (2) SCMP, “H.K. Well Supplied with Food,” January 4, 1954, p.11, col.6.  (3) David Drakakis-Smith, High Society: Housing Provision in Metropolitan Hong Kong, 1954 to 1979: A Jubilee Critique (Hong Kong: Centre of Asian Studies, University of Hong Kong, 1979), p.31-32, 47.


[14] Michael Share, “The Soviet Union, Hong Kong, and the Cold War, 1945-1970,” Cold War International History Project Working Paper No.41, January 2003, p.11-12.


[15] (1) James T.H. Tang, “World War to Cold War: Hong Kong’s Future and Anglo-Chinese Interactions, 1941-55,” Precarious Balance: Hong Kong between China and Britain, 1842-1992, ed. Ming K. Chan (Hong Kong: Hong Kong University Press, 1994), p.119, 122-123 (hereafter referred to as Precarious Balance).  (2) Welsh, p.450.  Britain and the PRC did not assume full diplomatic relations until 1972, when they finally exchanged ambassadors.  (See the website of the British Embassy in China for more information.)


[16] Welsh, p.450-451.


[17] Editorial, “Economic Ranking No Cause for Complacency,” SCMP, January 5, 2006, p.A10.


[18] (1) John D. Young, “The Building Years: Maintaining a China-Hong Kong-Britain Equilibrium, 1950-71,” in Precarious Balance, p.141-142.  (2) Share, p.17-18.


[19] Share, p.28.


[20] (1) Dan Waters, “Hong Kong in the 1950s and ‘60s: Reminiscences,” Journal of the Hong Kong Branch of the Royal Asiatic Society 42 (2002), p.337.  (2) F.D. Ommanney, Fragrant Harbour: A Private View of Hong Kong (London: Hutchinson, 1962), p.72-73.  According to Ommanney, the Communists did not want to let on that people were starving in China, so they even gave away sacks of rice to Hong Kong, which quietly accepted it.


[21] The author discovered this during a 2002 tour into China, when during a stop at a restaurant for lunch, the tour guide explained that the reason why the ingredients in the dishes looked inferior to those found in Hong Kong restaurants was because much of China’s premium produce is sold abroad, where it could fetch more money, while the average Mainlander makes do with lower quality harvest.  Now that some Mainlanders enjoy a higher standard of living, they too can afford higher quality produce.


[22] Elsie Tu, Colonial Hong Kong in the Eyes of Elsie Tu (Hong Kong: Hong Kong University Press, 2003), p.43.


[23] Drakakis-Smith, p.39.


[24] Tu, p.40, 43-44, 56.


[25] Drakakis-Smith, p.41, 52-53.  Of the 1.25 million postwar immigrants who had arrived in Hong Kong by 1953, no more than 300,000 became squatters.  Most of the rest ended up in private tenements.  A typical family paid about HK$5 a month for a space in a tenement -- before redevelopment.  A lead tenant of a tenement sometimes profited more than the landlord from subletting (the renting out of subdivided sections of an apartment to sub-tenants, who in turn could subdivide even further and rent out even smaller compartments).


[26] (1) Denis Bray, “Shaping Up for the 21st Century,” Hong Kong 1991: A Review of 1990, ed. David Roberts (Hong Kong: Government Printer, 1991), p.9.  (2) Alex Lo, “Fiery Crucible of a Society; The Forces That Shaped Hong Kong's Cramped Public Housing Policy Can Be Traced Back to Shekkipmei and 1953's Fire,” SCMP, September 6, 1998, p.2.  (3) Welsh, p.454, 477.  (4) Tu, p.49.  (5) Drakakis-Smith, p.45, 54.


[27] Drakakis-Smith, p.39, 47.  Squatters paid HK$15-$20 a month for their huts, while the average public flat rented for only HK$14.


[28] Drakakis-Smith, p.44.


[29] Bray, p.9.


[30] (1) Hong Kong Resettlement Department, Hong Kong Annual Departmental Report by the Commissioner for Resettlement for the Financial Year 1954-55 (Hong Kong: Government Printer, 1955), p.7, 19, 46.  (2) Drakakis-Smith, p.43-44.


[31] (1) Drakakis-Smith, p.52-53.  (2) Tu, p.45, 50-52, 67.


[32] (1) Tu, p.46-47, 52, 56.  (2) Drakakis-Smith, p.53, 55.


[33] Tu has several chapters in her book that discuss corruption.  In particular, see p.67-72.


[34] Shirley Lau, “There Goes the Neighbourhood,” SCMP, September 24, 2002, Feature, p.1.


[35] Reprinted in Drakakis-Smith, p.103.


[36] Dan Carney, “Dwayne’s World,” Mother Jones, July/August 1995.


[37] Victoria Button, “Grocery Shoppers Go Bargain Hunting but End Up Spending More; Consumers are Displaying Classic Recessionary Behaviour, According to Researchers,” SCMP, February 7, 2003, News, p.6.  Many, however, still believe that wet markets offer fresher food than supermarkets, and shoppers can haggle over prices at the former, but not the latter.


[38] Lau, “Supermarkets' price war is heartless, say pork traders,” SCMP, May 8, 2002, News, p.4.  Shoppers were not slow to see the supermarkets’ strategy.  Commented one: “I reckon the price will go up after the wet markets are gradually phased out.”

[39] This is The Link REIT.  It was originally scheduled to debut in late 2004, but was delayed by a couple of elderly public housing residents who challenged its legality.


[40] (1) Tom Holland, “Time to Level the Playing Field; Part 1 -- The Big Picture,” SCMP, October 31, 2005, p.B5.  (2) Jane Moir, “Family Grocery Bill Bears the Brunt; From Noodles to Laundry, the Lack of Appropriate Law is Felt across the Consumer Spectrum; Part 2 -- The High Street,” SCMP, November 1, 2005, p.B5 (hereafter referred to as “Family Grocery Bill”).  (3) Anthony Cheung Bing-leung, “Market Freedom isn’t Everything,” SCMP, January 10, 2006, p.A13.


[41] Moir, “Family Grocery Bill”.


[42] USDA Foreign Agricultural Service, “Hong Kong Market Development Reports: Absence of a Competition Law Restricts Retail and Wholesale Food Trade Practices in Hong Kong, 2000,” GAIN (Global Agriculture Information Network) Report #HK0062, October 10, 2000 (hereafter referred to as GAIN Report #HK0062).


[43] (1) Jake van der Kamp, “Hefty Bribes Mean Cartels Keep Our Groceries Seriously Overpriced,” SCMP, November 14, 2005, p.B16.  (2) Benjamin Wong, “27 Held in Supermarkets Graft Probe; Suppliers Paid Wellcome and ParknShop Staff over $100,000 a Month to Get Produce on Shelves, Says ICAC Source,” SCMP, November 5, 2005, pA1.


[44] Van der Kamp, “Hefty Bribes”.


[45] Anonymous, letter to the editor, SCMP, November 8, 2005, p.A18.


[46] (1) Consumer Council, “Competition in the FoodStuffs and Household Necessities Retailing Sector Findings and Recommendations,” August 2003.  (2) Holland.


[47] (1) GAIN Report #HK0062.  (2) Moir, “Family Grocery Bill.”


[48] (1) Eng.  (2) GAIN Report #HK0062.  The two major supermarket chains employ a practice familiar to any big box -- squeeze their suppliers, who in turn squeeze smaller retailers, which Carrefour happened to be in Hong Kong.


[49] Moir, “Cosy Club Builds on Dreams of Home; Buyers Count Cost with Development in the Hands of a Few Major Players; Part 5 - The Builders,” SCMP, November 4, 2005, p.B5.


[50] Augustin-Jean, p.2-4.


[51] Holland.


[52] Philip Bowring, “Failing the Public Morality Test,” SCMP, November 14, 2005, p.A17.

[53] Holland.


[54] Guy de Jonquières, “How the Property Pitfall Ensnares Hong Kong,” The Financial Times (London), Asia Edition, November 8, 2005, p.13.  However, the writer recommended broadening Hong Kong’s tax base with a sales tax, which would fall more heavily on lower income people.


[55] (1) Adam Smith, The Wealth of Nations, Books IV-V, ed. Andrew S. Skinner (London: Penguin Books, 1999), p.lii.  (2) Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. Edwin Cannan (New York: The Modern Library, 1937), p.250.


[56] Richard Shenkman, “I Love Paul Revere, whether He Rode or Not” – Warren Harding (New York: HarperPerennial, 1992), p.52.


[57] Thom Hartmann, “Nobles Need Not Pay Taxes,” Commondreams.org, February 1, 2005.


[58] Van der Kamp, “Coming Right Down to it, Somalia is the World’s Freest Economy,” SCMP, January 6, 2006, p.B12.


[59] Joseph Winter, “Somalia’s Angels of Mercy,” BBC News, December 1, 2004.