Thomas White Global Investing
Hong Kong
Hong Kong Stamp
July 23, 2010
A Postcard from the Asia Pacific
Hong Kong: Minimum Wages Bill Passed but Issues Remain

Hong Kong’s skyline in the night

Hong Kong is one of the world’s richest economies with a per capita GDP of $30,863 in 2008.

It was a marathon debate that lasted 41 hours. In the end, Hong Kong’s lawmakers passed into history the city’s first ever minimum wage bill, a law that will be brought into effect next year. But already the city’s trade union activists are celebrating.

Hong Kong’s free market economy is considered the freest in the world, as rated by Transparency International. Yet, two years ago, the Hong Kong government bowed to popular demand, and agreed to draft a minimum wage bill. Finally, the bill was passed this week, albeit after much contention. The provision doesn’t stipulate the minimum wage yet, although trade unions have been demanding HK$33 or $4.23 while businesses are offering HK$23 to HK$24 ($2.95 to $3). That task is in the hands of the Provisional Minimum Wage Commission, which will hand over its recommended wage rate to Hong Kong’s Chief Executive Donald Tsang in August. But amidst the celebratory brouhaha, Secretary of Labor and Welfare Matthew Cheung Kin-chung has also urged caution, warning that some job losses might well be inevitable once the minimum wage law comes into effect.

Clearly, the minimum wage move is being hailed by social activists, yet businesses and free market advocates are not too happy with the turn of events. Cheung Kin-chung admitted as much when he told The Standard that employers need to be educated on their ‘social and corporate responsibilities.’ Criticisms of the initiative have been many and far-ranging. First, was an outcry from migrant workers, who were not included in the law. Thousands of foreign low-wage workers earn their living in Hong Kong as live-in domestic workers, mainly from Indonesia or the Philippines, and increasingly from mainland China. These workers are instead covered under the Minimum Allowable Wage policy, which fixes a monthly salary of HK$3,860.

Others have questioned if Hong Kong is slowly losing its economic freedom, and the principles on which its free market economy is based. Hong Kong’s government has been known to be minimally interventionist, in part the reason why the region was labeled the freest economy in the world. Long before the minimum wage became an issue, the state had already introduced a compulsory pension scheme in 2000. More recently, a new food labeling law wrought confusion among retailers who are now required to ensure that all food products on their shelves carry appropriate nutrition labels.

And then, there are other issues. Will it raise the unemployment rate? Will there be large scale layoffs? Hong Kong’s jobless rate has remained steady at 4.6% in the three months ending June 30, but that may change if and when the GDP slows down, and job creation momentum gets bogged down as a result. But despite the heated discussion and controversy that the minimum wage bill has generated, there is no doubt that it will become firmly entrenched in Hong Kong’s economic history. Long down the road, the law might face its toughest criticism yet, but Cheung Kin-chung knows that his biggest test going forward will be to, in his own words, ‘make sure that Hong Kong’s economic competitiveness is not significantly eroded.’ For a city that has worked long and hard to cultivate its ‘free’ image, giving up that competitiveness may not be an option.

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