Weak Retail Sales Here In Hong Kong Is No Surprise To Me....

The news reads as if the economy is booming here. Its kind of puzzling to me, but it just doesn't feel that way. And today's Standard article points out that Golden Week holiday sales have been disappointing...

Hong Kong's retailers have reported disappointing sales for National Day Golden Week, with only moderate growth reported midway through the mainland holiday break and less than the expected benefit coming through from newly opened Disneyland.

In addition to a moderately growing economy, there are other looming problems that lead me to believe that Hong Kong is destined to just muddle through over the next couple of years.

In general, prices seem to be quite a bit higher, but this is more the result of an accommodative monetary policy emanating from the US Federal Reserve than from anything fundamental in Hong Kong. Easy money from the Fed is being slowly but surely tightened, so this will dampen the enthusiasm for some of the raising price mania that I have noticed.

Many have put so much currency in the opening of Disneyland, and yes, this is a big positive for the transitioning of the economy away from manufacturing into services such as entertainment, but it is only part of the puzzle.

I feel that much of the problem facing Hong Kong's long-term prospects revolve around the crushing of competition and entrepreneurial spirits by uber-wealthy Hong Kong tycoons. A 2002 study found that Hong Kong ranks among one of the lowest countries in the world in entrepreneurship.

Hong Kong's total entrepreneurial activity (TEA) in 2002 is among the lowest in the world, with only three per cent of Hong Kong's adult population initiating new ventures.
There are more "opportunity" entrepreneurs (two per cent) than "necessity" entrepreneurs (one per cent).
The "opportunity" entrepreneurs are more likely to have post-secondary education and to come from the wealthiest third of society.
The youngest age group (18-24) is also the most entrepreneurial.

Professor Chua's team has identified a number of strengths and weaknesses. Strengths include Hong Kong's great location in the rapidly growing and entrepreneurial Pearl River Delta; excellent physical and legal infrastructures, low taxes, pro-business government; Hong Kong people's superior business skills and entrepreneurial, self-reliant tradition; a world-class banking system as well as abundance of informal capital for business start-ups.

Weaknesses range from high costs, small markets, an education system that is not conducive to creativity, poor links between research and development; Hong Kong people's poor knowledge of and connections with the Pearl River Delta and banks' conservative bias towards asset-based lending.

My theory on tycoons being the root of the economic malaise in Hong Kong is not borne out by the research done here, but it is compelling in my mind.

So, why try to compete if the tycoons, with greater access to favors by government officials and huge financial resources, may decide to crush your initiatives if you tread on their turf? In my real-estate ventures, this is one of the considerations that we have to address every day!