The media obsession with the absolute number of China’s growth, whether it will be 7%, 6.5% or 6%, ignores a subtle change in the figure itself. Beijing as we know is driving to towards a "new" consumer-led economy and steering resources away from the "old" industrial economy.
A casual look at the components of the GDP numbers and one can undeniably see that the services sector is growing while the "old" economy is diminishing. But this process is neither smooth nor concurrent, and difficulties are emerging.
The overarching rationale is that by driving resources toward the consumer sector, Beijing is trying improve the "quality" of growth. Quality, of course, has a number of interpretations and varying outcomes.
In Hong Kong, a resulting change is becoming visible. In the European expat stronghold of Mid-Levels, rental accommodation prices are falling. In fact, prices are falling so fast that estate agents no longer bother to reprint the individual flat advertisements in their windows. They just cross out the old price with a felt-tip pen and write in the new. It is common to see two or three downward price changes on the same advert. Although one can argue this is a long overdue reaction to the increased building of homes and a rising interest rate, there is something else, something deeper.
European expats are not a constant. They are global gypsies flying in business class, attracted to foreign cities by the lure of opportunity. All expat communities rotate and change as contracts and work visas expire.
In Hong Kong, Europeans seem to turn over every two to three years. But it seems now that the pool of new expats is drying up; those expats who are leaving are not being replaced. The recent axing of more than 1,000 Barclays staff across Asia is a high profile reflection of the same shift that other banks have been making for the past year.
For their own reasons, European and American banks are closing down their Asian offices, particularly their commodity trading units. This empty sector is open to the Chinese banks in both Hong Kong and Singapore, and there are a number of Chinese banks joining the key western commodity future exchanges, of which the London Metal Exchange is one.
All roads lead to Shanghai
However, the ascent of Chinese banks into this empty sector is a process that will take a number of years to mature. It is unlikely that any Chinese bank will make Hong Kong or Singapore its flagship location; that will remain Shanghai.
Although the phrase "gateway to China" seems branded into Hong Kong, all roads now to lead to Shanghai. The eastern China city is now the real gateway to China.
Without its former unique position, there is no real reason to treat Hong Kong, a city of only 7 million people, any differently from any other city in China. As the perception of volume and quality of opportunity in Hong Kong starts to fade, the global gypsies will bypass Hong Kong, and Mid-Levels will continue to drain. The global gypsy expats will only use Hong Kong as a waypoint to somewhere else, while insisting that their children learn the three most influential languages on the planet: English, Mandarin and Java.
Managing director, BANDS Financial Ltd
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