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Hong Kong’s Changing Status and Future Prospects (2): The Singapore Growth Myth

Over the past 20 years, while Hong Kong and Singapore have both demonstrated particular economic strengths, there has been a considerable gap in their comparative growth rates. Since acceding to Special Administrative Region (SAR) status in July 1997, Hong Kong has sustained a real GDP growth rate of 3.3% per annum, 1.6 times the 2% average growth rate of the world’s other advanced economies [1] over the same period. Despite this, it has consistently trailed behind Singapore’s 5.1% by more than 50% (or 1.8 percentage points).

Graph: Comparison of real economic growth
Graph: Comparison of real economic growth

While this largely highlights Singapore’s better-than-average performance rather than proving a below-par outcome for Hong Kong, the similarities between the development levels, aggregate economic volumes and structures of the two economies have made many wonder why Hong Kong has not demonstrated a comparative growth rate. Given that it has the mainland’s own tremendous growth as a spur, is there some fundamental flaw that has prevented Hong Kong from capitalising on this?

The answer to these questions lies in properly interpreting the available data. Although Singapore’s annual average GDP growth rate was 1.8 percentage points higher than that of Hong Kong over the past 20 years, its real per capita GDP growth rate was only 0.3 percentage points higher (2.9% vs 2.6%). This suggests that the differences in the two cities’ growth rates is largely due to increasing population levels. Over the past 20 years, Singapore’s population has increased by nearly two million. Its current population of 5.6 million represents a massive 52.6% increase over its 1997 level of 3.67 million. Over the same period, Hong Kong’s population increased by only 900,000, a mere 14% rise.

Graph: Comparison of per capita GDP real growth
Graph: Comparison of per capita GDP real growth

This difference can largely be accounted for by the contrasting population policies adopted by the two cities, with Singapore proving far more willing to expand its number of non-residents – largely workers granted only a temporary right of abode. This saw the number of such non-residents rise from 602,000 to 1.674 million over the period in question, increasing from 16.4% of the overall population in 1996 to 29.8% in 2016.

Although Singapore owes much of its economic growth to its rising population level, it also appears to be ahead of Hong Kong in terms of increased productivity, as indicated by its notably higher per capita GDP growth rate. This particular assertion, however, is open to question in light of the underlying differences in the population structure of the two cities.

While Singapore has a lower overall population level than Hong Kong, its labour force participation rate is higher. In 1996, its labour force participation rate was 55.2%, 6.1 percentage points higher than Hong Kong’s 49.1%. In other words, out of every 100 Singapore residents, 55.2 were in work, as opposed to only 49.1 in Hong Kong. By 2016, Singapore’s labour force participation rate was 65.5%, exceeding Hong Kong’s 53.4% by 12.1 percentage points, almost double the figure recorded 20 years ago.

From another perspective, in 2016, the output value of each member of Singapore’s working population had to be divided by 1.5 (to factor in the city’s number of non-economically active residents) to establish the per capita GDP figure. In Hong Kong, though, the output value of each economically active individual had to be divided by 1.9, resulting in a comparatively lower per capita GDP figure. If only the average output value of every member of the working (employed) population was counted, Singapore’s real growth rate of GDP per employed person over the past 20 years would be 3.7% – 0.5 percentage points (more than one-eighth) lower than Hong Kong’s similarly-calculated figure of 4.2%.

Graph: Comparison of workers’ per capita GDP real growth
Graph: Comparison of workers’ per capita GDP real growth

In short, Singapore’s labour productivity growth has actually been trailing behind that of Hong Kong for the past 20 years. Singapore only has a higher GDP and a higher per capita GDP because it has a faster-growing labour force than Hong Kong and a higher rate of labour participation (possibly because its population includes a high percentage of non-resident workers with most dependents living outside the country). Overall, Singapore’s development model may be seen as similar to that of Shenzhen and other mainland cities with a high percentage of migrant workers.

Such a growth model, however, would not be to the benefit of Hong Kong, given its high population density and its comparative scarcity of land resources. It should also be borne in mind that truly positive development relates more to an improved quality of life rather than simply the pursuit of higher GDP for its own sake.

This article originally appeared in Economic Herald Biweekly (4 June 2018)


[1] According to statistics supplied by the World Bank and the International Monetary Fund, the average per capita GDP of 33 countries and regions, including Western Europe, North America, Australia, New Zealand, Japan, Hong Kong, Singapore, Taiwan and South Korea, was 3.4% higher than that of Hong Kong in 1996. These economies are seen as comparable to Hong Kong due to their maintenance of similar development levels.

Content provided by Picture: Nicholas Kwan
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