Hong Kong's International Financial Centre: Retrospect and Prospect

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4. The Productivity of Hong Kong’s Labour Force Behind aggregate sectoral measures lies the fundamental reality of a workforce still adapting to the decline of manufacturing and the rise of a modern service economy. Before anything else, Hong Kong’s economy is comprised of its people. Land, location, climate, and natural resources—none matter and none count in the absence of a working, consuming, investing population. What has actually driven the growth of Hong Kong’s economy during recent decades? The answer is clear. Hong Kong’s contemporary economy has been shaped mainly by rapid growth in the productivity of its labour force, growth mainly occurring in financial and trade-related activities. 16 In recent years, the pace of growth in labour productivity in Hong Kong of about 5% per annum from 2002 to 2007 far exceeded that of Japan (1.8%), Singapore (2.9%), Taiwan (3.1%), Korea (3.3%), the Philippines (3.5%), Indonesia (3.6%), Thailand (3.7%), Malaysia (3.9%). No advanced industrial country comes close, but one country far exceeds it. China recorded an increase of 10.1% per annum for the same period. 17 The performance of China and Hong Kong are obviously related, and both were also negatively affected by the global business downturn associated with the financial crisis of 2008, but their joint productivity growth may be expected to resume as a global recovery takes hold. More revealing than the aggregate productivity indicator for Hong Kong is the breakdown by sector, for here we see much divergence over time and a shifting sense of the future. Driving annual changes are two components: the efficiency of labour deployed and technological progress. These key investments were made over time to upgrade the quality of the labour force, but deeper analysis suggests that the basic forces necessitating change came from service exports and the growth of complementary service sectors on the Mainland. 16 Frank Leung, Gaofeng Han, and Kevin Chow, “Financial Services Sector as a Driver of Productivity Growth in Hong Kong,” Working Paper 14/2009, Hong Kong Monetary Authority, 26 August 2009. 17 Ibid., p. 4. 24
_________________________________________________________________________ Annual Average Change in Total Factor Productivity for Key Sectors in Hong Kong 18 (1987-2007) Sector Efficiency Change Technological Progress Wholesale & retail trade -4.8 7.5 2.4 Restaurants & hotels -4.6 7.4 2.4 Trade -3.1 7.2 3.9 Transport& storage -2.8 5.8 2.9 Communications -2.8 5.8 2.9 Finance, except banking 0.5 7.1 7.7 Business services -5.0 7.5 2.1 Insurance 0 6.9 6.9 Construction & real estate -6.3 5.1 -1.5 Banking 0.1 6.4 6.5 _________________________________________________________________________ The sectoral composition of recent Hong Kong’s productivity growth underlines the longterm transformation in its economy since 1997. In essence, employment in the manufacturing sector has diminished as a share of GDP, while employment in the service sector has increased dramatically. Trading activities and transport services have led the way in the creation of new jobs. More accurately, those jobs reflect the expanding significance not of purely domestic exports but of re-exports to and from the Mainland. As highlighted in the previous section, jobs directly or indirectly connected to financial institutions are critical to the present and future Hong Kong economy. In an overall sense, the importance of the financial sector has long been important, not only in terms of new jobs but, increasingly over time, in terms of high-wage jobs. Because of technological changes, lowerwage jobs, including in the back-offices of financial institutions, have become relatively easy to move to cheaper locations. At the same time, front-office and highly-skilled jobs have increased in volume in Hong Kong itself ever since 1997. As confidence in the future gradually returned over the past decade and a half, Hong Kong’s financial institutions expanded their headquarters operations but also quickly followed their manufacturing clients to Guangdong and eventually further afield inside China. 19 In 2001, Ernst & Young made a high-profile move to Guangzhou and were soon followed by the Bank of East Asia, HSBC, and Standard & Chartered. At the same time, foreign banks, private equity firms, hedge funds, and other financial service providers established regional headquarters in Hong Kong. Best estimates are that regional offices and regional headquarters operations 18 Ibid., p. 23. 19 David R. Meyer, “Structural Changes in the Economy of Hong Kong since 1997,” The China Review, vol. 8., no. 1, Spring 2008, pp. 7-29. TFP 25
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they have always done so. For compe
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policies. With such images and such
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such a context, the range of financ
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Hong Kong's International Financial Centre: Retrospect and Prospect

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