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Population policy - it all depends

Hong Kong is currently consulting the public on its population policy. The policy paper is a very informative and educational document full of useful statistics and asks what the citizens want, in terms of quantity and quality.

The Steering Committee on Population Policy proposes that the objective of the policy should be "to develop and nurture a population that will continuously support and drive Hong Kong's socio-economic development as a socially inclusive and cohesive society that allows individuals to realise their potential, with a view to attaining quality life for all residents and families".

That is a very noble objective, but the real tough questions are "what number do we want" and how do we define "quality?"

It all depends on the context and the relative position of Hong Kong to its neighbours and competitors as a world city. It is all about how the people of Hong Kong see their own role and their ownership of the vision by 2041.

The facts are illuminating. Hong Kong's population has grown very slowly and is ageing fast. With 7 million residents, of which 312,000 are foreign domestic helpers (7 per cent of the workforce) and an unemployment rate of just over 3 per cent, the labour force will begin to peak in 2018 and steadily decline as the population ages. By 2041, one in three will be over the age of 65.

The reason the labour force is not growing is because the fertility rate in Hong Kong is the lowest among advanced economies, surprisingly even lower than Japan. Perhaps that is because the workforce is already working too hard to support family.

Furthermore, low-skilled foreign labourers (excluding domestic helpers) are only 0.1 per cent of the workforce, compared with 28 per cent in Singapore and 26 per cent in Macau.

The current average GDP growth rate of 4 per cent per annum comprises 1 per cent growth due to workforce growth and 3 per cent from productivity growth. When the labour growth rate turns negative after 2018, productivity will have to increase substantially for Hong Kong to maintain its growth rate. By comparison, Singapore's population policy is looking at 1-2 per cent workforce growth, plus productivity growth of 2-3 per cent, achieving somewhere between 3 and 5 per cent growth.

The policy dilemma is to how to increase both the labour force (quantity) as well as the quality? The free market will not solve this dilemma.

This is because the quantity and quality of land, labour, capital and human capital are all determined by government policy. If a state has difficulty increasing land supply, plus a constraint on population growth through immigration or the birth rate, then everything hinges on how talent and production can be nurtured through productivity gains.

Some political leaders use population targets as policy signals, such as the suggestion by former prime minister Mahathir that Malaysia should have a population of 70 million (as compared with current population of 27 million). Singapore's population policy white paper, published in January 2013, suggested a population of nearly 6.9 million by 2030 (3.6 million-3.8 million citizens, 500,000-600,000 permanent residents and the rest non-resident workers) and cost quite a few votes in the last election.

I would agree that if more than one quarter of the labour force comprises foreigners, as in Singapore and Macau, growing resentment of labour imports comes as no surprise, but surely the number that can be imported depends on the housing availability, the unemployment level and the quality of the imported labour? That requires a clear view of the growth model by 2041, which needs to be spelt out in more concrete terms.

An intriguing statistic is the low labour force participation rate of 58.8 per cent, slightly lower than Japan and 8 percentage points lower than Singapore. The Steering Committee suggests that since 1.6 million people between the age of 15 to 65 are "economically inactive", perhaps more people can be encouraged to work and to work longer. The view that women who stop work to raise family are "economically inactive" is neither fair nor gender sensitive.

Certainly, the Hong Kong labour force seems to retire earlier than its competitors, with a 61.7 per cent participation ratio for those aged 55-59, compared with 78.3 per cent in Japan. At the age range of 60-64, only 37.7 per cent of Hong Kong labour force is working, compared with 58.1 per cent in Singapore.

My view is that it is very difficult for the public to answer complex questions like "if we extend the working life of the elder, how can we alleviate the possible adverse impacts on the career prospects of the younger generation?"

First of all, it is by no means clear that getting older people to extend their retirement worsens career prospects for the young. After all, if the older population remains economically active, creative and has higher spending power, there would be more job opportunities for the rest of labour force.

Second, if Hong Kong does not address its total human capital policy with greater clarity, there is a risk that it will lose the talent war, as every city and country is today trying to raise their game in terms of research and development, innovation and hiring the best global talent. Concrete policies and measures will have to spelt out, sooner rather than later.

For example, the Third Plenum decision to relax the one-child policy in mainland China will have far-reaching implications on population growth and demand patterns, such as healthcare, education and services, all of which are opportunities for Hong Kong. Can an ageing population in Hong Kong, essentially a service economy, continue to serve a growing mainland and neighbouring economies effectively and competitively?

Of course, to make good decisions, there could be more technical studies to examine the trade-offs, costs and alternatives. All these mean that some tough choices will have to be made and these are ultimately political choices.

Population policy is all about people, which means it is all about politics.

Andrew Sheng is president of the Fung Global Institute.


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