It is relevant to refer to Hong Kong here, as it has a different history from that of mainland China. Hong Kong has a relatively small land mass of 1095 square metres. It has an estimated population of 6 687 200. It enjoyed rapid economic growth until the Asian crisis of 1997–98. This section will give a short review of Hong Kong’s historical development, and will highlight some of the issues that face the territory after its reunification with China.
Hong Kong became a British colony in 1843. The British wanted to secure a base from which to trade. Initially, one of the key exports to China was opium, which proved to be a lucrative business for the British. Drug taking was illegal, but there was a high demand for opium within China in the mid to late 1800s. The Japanese invaded China and subsequently Hong Kong in the Second World War, and occupied Hong Kong between 1941 and 1945.
They surrendered in 1945. The Communist Party came to power in China in 1949, and this provoked a wave of immigration from China to Hong Kong. Many of the immigrants were traders and businessmen. Many had fought against the Communists during the civil wars in China, and tensions remained between the two factions. Hong Kong became wealthy in the period after the Second World War. Central they retain much if not all of their deep-seated social and political characteristics. They remain ‘peasants who travel’. to its success were the Asian ‘tycoons’, many of whom were immigrants who had left mainland China in 1949–50.
The tycoons preferred to work with family members or close contacts, relating back to the Chinese concept of guanxi. However, there is an argument that Hong Kong will slowly move away from its patriarchal culture. Four main reasons have been highlighted. First, the first generation of Chinese businessmen are preparing to hand over to their children, many of whom have been educated in the West. Second, the financial crisis of 1997–98 made the businesses more reliant on Western capital. Third, the Internet may pose a threat to more traditional businessmen. Finally, Asia’s maturing legal and financial framework may undermine the influence of Chinese networks overseas (Anon, 2000a).
Hong Kong was ruled under British sovereignty until 1997. As a result, it developed a capitalist business system that was influenced by Chinese culture and traditions. Sovereignty was handed back to mainland China in 1997. Hong Kong became a Special Administrative Region (SAR), and the agreement was that it would maintain its legal system and capitalist approach for at least 50 years. There were many concerns that the agreement would not protect the democratic rights of the people of Hong Kong, or that reunification would affect the economic progress of Hong Kong.
In the event, the handover appeared to run smoothly. Hong Kong now has an executive-led, non-elected government and a legislative council (elected by universal suffrage). The system has not been without its problems, and Hong Kong must decide in 2008 whether or not it wishes to move to a fully elected government (Financial Times, 1999b). The main problem that has faced the government since 1997 is how to respond to the Asian economic crisis. Hong Kong’s economy was badly hit by the Asian economic crisis. GDP growth fell by 5.1 per cent in 1998 and by 1.5 per cent in 1999. Unemployment levels rose from 4.7 per cent in 1998 to 7 per cent in 1999 (Financial Times, 1999b).
Indeed, when South Korea, Singapore and the Philippines began to emerge from the Asian crisis, Hong Kong’s GDP continued to fall. After 1997, Hong Kong began to be regarded as having an uncompetitive cost base. Several factors were cited as contributing to Hong Kong’s problems, and four key issues emerged. First, property values were too high. Second, property rentals were too high. Third, service charges levied at ports and airports were too high (Lucas, 1999a).
A fourth key problem related to wage levels within the territory. Prior to 1997, wage levels were spiralling without concomitant increases in productivity. After the onset of the Asian crisis, some large companies cut salaries and others moved operations abroad (Lucas, 1999a). Hong Kong had been used as a gateway to China, but China was increasingly shipping direct from its own ports (Lucas, 1999a).
Hong Kong’s economy experienced two economic slowdowns in the five-year period from 1997/8 to 2002 (Leahy, 2002). During this period, property prices fell by 65 per cent and this contributed to a four-year period of deflation. In addition, unemployment rose and hit a record level of 7.8 percent in 2002 (Leahy, 2002). Large companies, including Motorola, the Bank of Asia and Swire Pacific, continued to shed staff (Grammaticas, 2002).
Hong Kong’s ports continued to lose market share to mainland China by 2002, but air cargo exports rose and tourist arrivals increased in 2002. Some experts predict that Hong Kong’s GDP growth could rebound to 5.5 per cent by 2003 and that GDP could rise by 3.5 per cent a year in the period until 2008 (Jacob, 2002). If China’s entry into the WTO leads to the predicted growth of exports, Hong Kong’s small and medium sized company sector could benefit in that they currently operate more than 6000 factories in mainland China (Jacob, 2002). Some believe that the future for Hong Kong’s economy will lie in high technology.
For example, it may be used as a base for developing China-relevant software (Lucas, 1999b). However, there are concerns that it is less advanced in this sphere than countries such as Singapore. In common with Hong Kong, Singapore has also been used as a small open economy that is a springboard to less developed economies. However, Singapore has been more aggressive in terms of offering incentives to attract preferred industries such as banking, technology and the media (Lucas, 1999b). Hong Kong has not offered the same degree of incentives to potential businesses.
In terms of technology, in particular, there is also a concern that there could be a lack of skills to service the fast-growing technology sector within the local labour market (Lucas, 1999b). There is also a concern that only 25 per cent of school leavers go on to university within Hong Kong (Jacob, 2002). Hong Kong has acted in recent years as ‘a “half-way” house between a modern Western business society and the mainland China context’ (Selmer et al., 2000: 237). However, this role may diminish as the process of modernisation and openness in China continues to develop.
Some of the specific HR issues include the fact that Hong Kong has strictly limited the importation of labour. Businesses are allowed to import construction workers and domestic help, but it has been more difficult to import potential managers (Fields et al., 2000). Some studies have suggested that labour turnover of educated workers and managers tends to be high, and can pose a problem for Hong Kong businesses. Some companies are placing more emphasis upon internal development and promotion to try to alleviate this problem. Fields et al. (2000) have found that retention rates are higher in these cases.
However, an adequate supply of skilled managers will be critical for Hong Kong’s future, especially in the information technology sector. Investment in training is a key issue. Fields et al. (2000) have found, for example, that some companies are reluctant to invest in training, and this is possibly linked to the problem of ‘job-hopping’ in Hong Kong. In addition, evidence suggests that training budgets have been cut in the light of economic slowdowns (Chu and Siu, 2001).
The issue of wage rises has been dealt with above. Wage rises prior to 1997 tended to run ahead of productivity, so contributing to the fact that it was expensive to operate from Hong Kong. These were reigned in after 1997, and some employees had their salaries cut. This caused conflict in some industries. For example, Cathay Pacific cut the salaries of its pilots, and this led to 17 days of disruption in 1999, which cost the company between HK$ 400m and HK$ 700m.
This short review has highlighted some of the key differences in the historical and economic context of Hong Kong. It is clear that there are substantial differences between the system in Hong Kong and that of its mainland counterpart. It is also clear that Hong Kong’s role of ‘middle-man’ between the West and the East may be further compromised as China continues to modernise.
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