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HKU  EFSI  Digest  –  Issue  I   October  the  31st,  2012  

     

 

 

 

 

 

 

 

Edito    By  Alixe    Leclercq,  VP  Publication  

 

Coming  up  in  this  month  edition:    

 

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ear  fellow  students,  welcome  to  our  first  edition  of  HKU  Economic  &     Finance   Students   Intelligence   Digest!     We   start   with   an   overview   of   the   October   market   trends,   depicting   the   Monetary   Authority    intervention   against   the   rising   HK$,   Draghi’s   Outright   Monetary   Transactions   (OMT),     Facebook  stocks  and  ending  with  a  table  of  this  month’s  market  data.  Next,   “Working   towards   Sustainable   Energy”  gives  us  a  stance  at  where  the  world       biggest  economies  stand  on  energy  efficiency  terms,  and  presents  Australia   interesting   contrast:   what   has   been   done   and   the   challenges   ahead.     Furthermore,   “On   the   Conflict   Resolution   of   Labour   Relations   in   Hong   Kong”   describes   the   recent   tension   between   HK   employees   and   employers     on  standard  working  hours  (SWH).  After  having  analyzed  the  rationales  and   the  impacts  of  SWH,  it  looks  at  various  related  issues  such  as  the  relaxing  of     markets.     Individual  Visit  Scheme,  non-­‐pecuniary  wages  and  land  and  housing       month  for   Not  in  this  issue  but  worth  noting,  October  has  been  another  busy   economic  commentators.  First,  the  attribution  of  Sveriges  Riksbank  Prize  in     and   Lloyd   Economic   Sciences   in   Memory   of   Alfred   Nobel  to   Alvin   Roth   Shapley  for   their   work   on   the   “theory   of   stable   allocations   and   practice   of   market   design".   Also   noticeable,   Rajat   Gupta,   the   head   of   the     world   most   prestigious   consultancy,   McKinsey,   was   sentenced   to   two   years     drawn   to   imprisonment   for   insider   trading.   A   storm   of   attention   has   been   the   Chinese   companies   Huawei   and   ZTE,   as   a   report   from   the   Intelligence     of   being   a   Committee   of   the   US   House   of   Representatives,   accuses   the   firms   menace   to   America’s   national   security.   However,   the   report   provides   very   little   evidence.   On   the   last   page   of   this   edition,   you   will   find   a     selection   of   relevant   articles   on   this   month   hot   topics   displayed   in   the   edito,   as   well   as     next   issue,   the   firsts   steps   to   follow   would   you   wish   to   contribute   to   our   information  on  the  next  Chatterbox  session  and  in  bonus,  a  economic  model     predicting     who  will  win  the  US  presidential  elections.             This    month’s  cartoon  

 

 

 

 

 

  Correspondents:   Alixe  Leclercq  (VP,  Publications)   alixe.leclercq@gmail.com       Leslie  Tay     leslie.tay@hku.hk     Gauri  Noolkar   noolkargauri@gmail.com     Ng  Cho  Yiu   joeng128@yahoo.com.hk         This   month’s  graph          

 

 

   

 

 

The   main   purpose   of   HKU   EFSI   is   to   create   a   platform   to   encourage   the   exchange   of   ideas   and   to   promote   opportunities  for  simple  research  and   analytical   work   in   the   sphere   of   Economics   and   Finance.  In   addition   to   the   EFSI   Digest,   we   are   running   monthly   "Chatterbox"   session   to   allow   students   to   exchange   views   and   "chat"   on   certain   issues.   The   last   session   was   held   on   October   the   3rd   and   the   topic   was   “Is   China’s   growth   sustainable?”    

 

 

  20,  2012     October  

 

 

 

 

 

From  The  Economist  

 

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HKU  EFSI  Digest  –  Issue  I   October  the  31st,  2012  

   

 

 

    This  month’s   table:  8  main  differences  between  Obama  and  Romney  Tax  plans         Issue   Romney   Obama       Tax  Agenda   Ambitious   b ut   o paque   Modest   b ut   r elatively   t ransparent     In  a  nutshell   Would  cut  tax  rates  across  the  board   Would  raise  rates  for  high-­‐income  households.       Tax  reform   Would  fundamentally  rewrite  the  revenue  code   Doesn’t  seem  to  plan  broadening  the  tax  base     Deficit  reduction   Believes   low   tax   rates   will   generate   enough   Believes   that   tax   increases   on   high-­‐income     economic  growth  to  address  the  issue   households  are  a  key  piece  of  deficit  reduction     Green     Tax   Would  eliminate  tax  preferences  for  green  energy   Would  preserve  them     Double  overseas   Would   shift   to   a   territorial   system   in   which   Would   continue   to  impose   U.S.   tax   on   foreign     corporate  tax   domestic   firms   owe   no   U.S.   income   tax   on     their   earnings   of   domestic   firms,   and   make   it   tougher   for     foreign  activities   those  companies  to  avoid  tax  by  keeping  their  profits       overseas.   2009  tax  c  redit  for   Would  let  them  expire   Would  extend    them     low  and  m  oderate   income  households       Tax  on  Investment   Would  cut  them   Would  raise  them     income       Drawn  after     resources  from  http://taxvox.taxpolicycenter.org           Market  Trends    

 

By  Leslie  Tay  

Co  

Asia:  Hong  Kong  Monetary   Authority  intervenes  against  rising   HKD  

 

The  Hong  Kong  Monetary  Authority  (HKMA)  has   intervened   on   several   occasions   this   month   against   the   rising   HKD.   Hong   Kong   has   been   experiencing  strong  capital  inflows  as  a  result  of   QE3   and   weak   economic   performance   of   the   European   markets.   The   pegged   currency   has   been   pushed   to   its   upper   limits   set   at   HKD7.75   against  the  USD,  with  the  lower  limits  pegged  at   HK$7.85.     According   to   data   from   Bloomberg,   the   currency   was   trading   at   HKD7.7502   on   Oct   24th.     HKMA   has   intervened   by   swapping   about   HKD159.9  billion  for  USD  since  Oct  19th.    The  last   time   the   HKMA   intervened   in   the   currency   market   was   in   2009.   The   increased   supply   of   USD   as   a   result   of   QE3   will   continue   to   put   pressure   on   the   monetary   policies   of   stronger   developed   and   emerging   economies,   especially   in   countries   in   Asia   Pacific,   such   as   Hong   Kong,   Philippines   and   Singapore   as   hot   money   flows   outwards   from   the   United   States   in   search   of   better  returns.  Economists  in  Hong  Kong  remain    

 

   

    on  a  vigilant  lookout  for  potential  asset  bubbles   fuelled   by   such   capital   inflows.   The   Hang   Seng   Index   has   risen   about   7.47%   since   the   announcement   of   QE3   and   14.13%   since   the   start  of  the  year.    

 

  Source:  China  daily,  25/10/2012  

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HKU  EFSI  Digest  –  Issue  I   October  the  31st,  2012  

   

Europe:  Mario  Draghi  seeks  German   support  

US:  Facebook  stocks  rises,  Citigroup   fined  for  breaching  non-­disclosure  

In  an  attempt  to  convince  German  legislators  on   the   merits   of   his   “Outright   Monetary   Transactions”  (OMT)  programme,  ECB  President   Mario  Draghi  appeared  in  a  joint  session  of  three   committees   in   German   Parliament   to   explain   how   the   OMT   will   restore   market   confidence   within  Europe  as  well  as  to  allay  fears  of  inflation   through   such   purchases.   Whilst   Draghi   believes   that   the   OMT   will   fix   the   transmission   mechanism   of   monetary   policy   within   Europe,   critics  have  described  the  OMT  as  a  programme   that   goes   against   the   price   stability   objective   of   the   ECB.     German   lawmakers   are   also   keen   to   understand   the   conditionality   requirements   of   such  bond  purchases,  especially  with  regards  to   Spain.    Bond  yields  for  Spain  has  decreased  since   the  announcement  of  a  potential  rescue  plan  by   ECB   last   month,   though   the   former   has   resisted   taking   up   the   bailout   package   despite   jobless   rates  climbing  to  record  high.  On  a  whole,  Draghi   has  successfully  addressed  the  concerns  of  most   German   lawmakers.   Such   open   communication   between  ECB  and  German  lawmakers  will  prove   to  be  vital  in  the  long  run.    

Facebook,  the  largest  social  networking  site,  has   seen  its  sharing  soaring,  climbing  by  as  much  as   20%  after  it  reported  sales  that  exceed  analysts’   estimates.  Its  current  share  price  at  $21.94  is  still   at   a   much   lower   than   its   initial   IPO   price   at   $38.23.   Despite   experiencing   a   net   loss   of   $59   million   in   the   third   quarter   due   to   higher   expenses,  Facebook  has  managed  to  increase  its   revenue   in   advertising   as   well   as   to   grow   the   number   of   its   mobile   users.   Marc   Zukerberg   remains   confident   that   the   mobile   market   presents   many   opportunities   for   the   company   but   has   been   mostly   misunderstood   by   investors.     In  the  same  month,  Citigroup  has  been  fined  $2   million   for   disclosing   confidential   information   before   Facebook’s   IPO   and   therefore   breaching   its   non-­‐disclosure   obligation   as   part   of   Facebook’s  underwriting  syndicate.    

     

 

     

 

   

October  Market  Data    

Oil:  85.59   Copper:  3.52   Gold:  1712.50   Soybeans:   1544.75  

10  Year  Treasury:   1.73%   10  Year  Gilt:  1.86%   10  Year  Germany:   1.52%   10  Year  Greece:   17.34%  

        Sources:  Bloomberg,  Reuters,  Yahoo  Finance                      

 

Photo:  Efe    

 

S&P  500:  1441.93,  -­‐   1.99%   FTSE     100:    5787.87,   +0.72%     Nikkei  225:  8929.34,     +0.67%   Hang     Seng:  21511.05,   +3.20%  

 

 

 

 

 

 

 

 

 

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HKU  EFSI  Digest  –  Issue  I   October  the  31st,  2012  

   

Working  towards  Sustainable   Energy   By  Gauri  Noolkar    

The  Global  Scenario   It   is   no   secret   that   the   global   environmental   crisis   is   due   to   manmade   activities.  The  Industrial  Revolution  set  mankind   on   the   path   of   unprecedented   volume   of   economic   prosperity   and   since   then,   man   has   never   looked   back.   However,   with   this   hitherto   unknown   prosperity   stole   in   a   dependence   on   non-­‐renewable   sources   of   energy.   Today,   we   cannot   imagine   life   without   electricity,   cars   and   cooking  stoves.  Despite  the  slow  realization  that   the   sources   giving   energy   to   these   facilities   are   getting   depleted   each   minute,   we   are   simply   unable   to   reduce   our   dependence   on   them;   after   all,   old   habits   die   hard.   Yet,   efforts   are   being  made.     The   latest   International   Energy   Efficiency   Scorecard   published   by   the   ACEEE   (American   Council   for   an   Energy-­‐Efficient   Economy),   evaluated   the   efficiency   of   12   global   economies  in  energy  use.  In  a  comparative  study   of   these   economies,   various   criteria   like   Energy   Productivity,   tax   Credits   and   Loans   Programs,   Energy   Efficiency   Spending,   Energy   Efficiency   R&D   Spending,   Fuel   Economy   Standards   and   Energy   Intensity   of   Industrial   Sector   were   used   to  assess  the  efficiency  levels  of  the  economies.   The  results  came  out  to  be:  

Rank   1   2   3   4   5   6   9   10   11   12  

Economy   UK   Germany   Italy   Japan   France   EU,  Australia,  China   US   Brazil   Canada   Russia  

Energy   Efficiency   Scorecard   (ACEEE),   2012:   Final   Rankings  of  Economies.  

 

 

 

These   economies   were   selected   because   of   their   lion’s   share   in   global   gross   domestic   product   (more   than   75%),   global   energy  consumption,  and  global  carbon-­‐dioxide-­‐ equivalent   emissions   (both   more   than   60%).   These  numbers  show  that  it  is  important  to  trace   their   efforts   and   progress   in   reducing   their   dependence   on   and   uneconomical   use   of   non-­‐ renewable   energy   resources,   because   it   will   create   a   larger   impact   on   preserving   energy   resources   and   reducing   environmental   hazards   at  a  global  scale.  

Sharp  Focus:  Australia   Why  this  abrupt  narrowing  down  on  Australia?   Two  reasons:  One,  the  facts,  two,  the  efforts.       Facts:   Australia  is  the  world’s  largest  producer  of  coal,   which   constitutes   more   than   half   of   its   exports.   At   the   same   time,   wind   energy   is   the   fastest   growing   energy   resource   in   the   country,   with   a   growth   rate   of   almost   70%   per   year   for   more   than   20   years.   Australia   has   almost   half   of   the   global   uranium   resources,   and   is   a   major   producer   and   exporter   of   energy,   while   it   is   ranked   20th   in   the   energy   consumption   rankings.   More   than   90%   of   Australia’s   energy   needs   are   fulfilled   by   non-­‐renewable   resources,   while   Australia   scores   full   marks   in   Energy   Efficiency   Spending,   Mandatory   Efficiency   Audits,   and   Energy  Use  in  Residential  Buildings  in  the  ACEEE   scorecard.   Australia   also   leads   the   world   in   Energy  Efficiency  R&D  Spending.     These   facts   are   interesting   and   rather   full   of   contrasts.   On   one   hand   we   see   a   developed   economy   with   a   high   level   country,   with  vast  consumption  capacity,  rich  in  uranium   and   coal,   principally   dependent   on   these   and   other  non-­‐renewable  energy  sources  to  fulfill  its   needs.   On   the   other   hand,   we   see   a   country   moving   towards   renewable   forms   of   energy   at   consistently   high   rate,   economical   with   its   consumption,   and   leading   the   world   in   R&D   for   energy   efficiency.   There   is   dependence   and   there  are  efforts  to  get  rid  of  it,  some  of  which,    

 

 

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HKU  EFSI  Digest  –  Issue  I   October  the  31st,  2012  

    according   to   the   facts   above,   have   started   bearing  fruit.     Efforts:   Efforts   like   developing   the   wind   energy   sector   at   such   high   rates   over   two   decades   are   an   excellent  example.  Australia  is  currently  the  14th   largest   wind   producer   in   the   world.   In   2009,   there   were   85   wind   farms   in   Australia,   mostly   along   the   coastline   in   the   South   and   West.   The   country   has   vast   untapped   renewable   energy   resources,  with  a  large  potential  to  develop  solar,   geothermal,   and   ocean   energy.   Australia   receives   the   largest   amount   of   solar   radiation   per  square  meter  in  the  world;  it  has  around  2.6   million   PJ   (1   Petajoule=   1015   joules)   of   geothermal   resources,   and   more   than   100   operating  hydroelectric  power  stations.   These   are   but   glimpses   of   the   tremendous  potential  the  country  holds  and  has   started  to  exploit.  The  ACEEE  ranks  Australia  4th   in   its   official   efforts   in   increasing   energy   efficiency,  describing  it  as  “a  nation  in  transition   to   greater   energy   efficiency”,   giving   top   scores   Tax   Credits   and   Loans   Programs.   It   is   true   that   the  Australian  government  provides  subsidies  to   the   coal   and   gas   sector,   however,   recent   legislations   like   the   RET   have   made   it   compulsory  to  generate  energy  (here,  electricity)   using   resources   at   least   20%   of   which   are   renewable.   There   is   also   the   White   Paper   scheme   released   by   the   Government   in   2008   targeting   reduction   of   emissions   of   greenhouse   gases.   The   Clean   Energy   Initiative   encourages   R&D   in   renewable   and   low-­‐emission   energy   production,   while   much   legislation   regarding   the   non-­‐renewable  energy  sources  is  in  progress.     In   addition,   the   Australian   government   has   made   it   compulsory   to   have   mandatory   energy   audits  which  depict  the  trends  in  use  and   efficiency  level  of  energy.  It  has  also  set  effective   policies   for   building   energy   consumption,   treatment   and   labeling   of   appliances   and   maintaining   performance   standards   of   production.   Despite   much   initial   trepidation,   Australia  has  also  accepted  the  Kyoto  Protocol.  

 

 

Definite  Actions,  Probable  Solutions   There   still   remains   a   lot   to   do.   A   lot   of   non-­‐renewable   resources,   notably   oil,   are   still   imported   into   Australia.   The   government   gives   subsidies  on  coal,  oil  and  other  conventional  fuel,   which   makes   it   hard   for   the   upcoming   renewable   technologies   to   compete   with   them   in   the   market.   Removal   of   these   subsidies   can   cause   the   prices   of   these   sources   to   climb   steeply  and  induce  high  inflation  in  the  economy,   but   it   creates   the   possibility   of   a   level   ground   on   which   both   types   of   energies   and   related   products  can  compete  fairly.     There   still   remain   various   other   renewable   resources   to   be   fully   discovered   and   developed,   and   investment   needs   to   be   increased   in   developing   their   reserves   and   the   technology  to  harness  them,  all  with  the  aim  of   producing   renewable   energy   at   competitive   costs.   Much   work   remains   to   be   done   in   the   pricing   and   marketing   area   as   well,   and   the   government   could   consider   subsidizing   renewables   as   an   initial   push   to   this   upcoming   and  long-­‐term,  economically  viable  industry.    

For  US,  the  economists   Economics   is   the   study   of   constrained   allocation  of  resources.   It   is   alright   for   everyone   to  save  water  by  closing  taps  and  save  electricity   by  turning  down  lights  on  leaving  a  room,  but  we,   as   economists,   can   do   much   more.   Renewable   energy   and   its   resources   are   still   not   fully   understood,   and   there   exists   a   wide   scope   to   discover  and  clarify  their  economic  and  financial   hurdles.   Firms   need   to   understand   by   how   much   costs  can  be  minimized  and  good  sales  could  be   made,  governments  are  keen  to  learn  how  they   can   formulate   energy   policies   serving   national   interests   and   reducing   dependence   on   imports,   and   the   common   man   would   like   to   seek   relief   from  growing  petrol  prices.  Simply  put,  there  are     plenty  of  opportunities  for  careers  in  this  sector!    

Sources:       http://aceee.org/  http://www.ga.gov.au/energy/     http://australia.gov.au/topics/environment-­‐and-­‐ natural-­‐resources/energy     5  

   


HKU  EFSI  Digest  –  Issue  I   October  the  31st,  2012  

   

On  The  Conflict  Resolution  of   Labour  Relations  in  Hong  Kong   By  Lee,  Shu-­‐kam    Ng,  Cho-­‐yiu   Originally   for   the   Business,   Economic   and   Public   Policy   Research   Centre,   Hong   Kong   Shue   Yan   University  

  During   the   past   century,   Hong   Kong   underwent   considerable   structural   changes   but   simultaneously   created   economic   miracles.   Faith   and   cooperation   between   employers   and   employees  are  the  indispensable  factors  for  the   success.   Nevertheless,   labour   relations   are   deteriorating   recently.   It   is   difficult   maintain   harmony   between   both   parties.   Instead,   new   labour   laws   have   been   enacted   to   settle   their   disputes.  

 

 

 

 

 

    Hence,  some  might  believe  that  earning   higher   wages   is   also   a   crucial   incentive   for   employees  to  support  SWH.  We  believe  that  the   desire   of   employees   to   increase   their   wages   is   understandable.   High   living   costs   in   HK,   particularly  the  housing  expenses,  accounts  for  a   great  portion  of  wages.  If  SWH  comes  into  force,   employees   could   earn   extra   income   for   high   housing  expenses.  

High   property   prices   and   rents   causing  conflicts  in  labour  relations     After   the   implementation   of   statutory   minimum   wage,   the   community   started   a   hot   debate   on   whether   standard   working   hours   (SWH)   should   be   implemented.   SWH   is   a   fixed   number   of   working   hours   of   employees   determined   by   the   government.   Labour   organizations   suggested   employers   should   pay   1.5   times   of   hourly   wage   as   compensation   for   overtime   work.   Generally,   employees   welcome   while   employers   oppose   to   the   suggestion.   Taking   the   rationale   behind   both   parties   into   consideration,   we   believe   that   high   property   prices   and   rents   are   the   roots   of   the   conflicts   between  employers  and  employees.   The   widespread   concerns   about   work-­‐ life   balance   become   a   rationale   of   the   advocates   for   SWH.   Nevertheless,   there   are   many   acceptable   schemes   to   employers   for   attaining   work-­‐life   balance,   such   as   flexible   work   hours   and  work-­‐at-­‐home  jobs.  Is  SWH  the  only  way  to   achieve   work-­‐life   balance?   In   fact,   diligence   is   a   marked   characteristic   of   HK   citizens.   After   the   implementation   of   SWH,   employees,   especially   the   junior   staff,   might   be   more   willing   to   work   overtime  or  part-­‐time  to  earn  higher  wages.  

 

  On   the   other   hand,   the   employers   also   have   reasons   to   be   against   SWH.   In   fact,   enterprises   are   struggling   with   a   dilemma.   They   bear   pressures   from   increasing   costs   due   to   statutory   minimum   wage,   shortage   of   retail   spaces   and   increasing   rents.   Enacting   SWH   will   lead   to   further   increase   in   operation   costs.   When   there   is   a   little   or   no   flexibility   of   cost   adjustment   left,   enterprises   would   increase   the   prices   of   products/services   to   cover   their   rising   costs.   However,   this   would   greatly   weaken   the   external  competitiveness  of  enterprises.  Indeed,   HK   has   already   possessed   the   most   favourable   competing   conditions   for   enterprises,   such   as   low   tax   rates,   while   the   so-­‐called   “most   favourable”   implies   the   government   could   do   nothing  more.     Imagine   if   governments   of   foreign   countries  reduce  tax  rate  while  HK  has  no  room   to  follow,  HK  will  be  brought  into  a  passive  state.   In  reality,  other  countries  like  Korea  have  started  

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HKU  EFSI  Digest  –  Issue  I   October  the  31st,  2012  

    to  cut  taxes.  Our  competitive  advantage  in  price   will   gradually   disappear.   Hence,   under   the   circumstances   of   increasing   rents   and   the   unwillingness   to   increase   products/services   prices,   enterprises   have   opposed   SWH   in   order   to   relieve   cost   pressure.   It   is   the   best   way   to   escape   from   the   dilemma   in   the   view   of   enterprises.  

The  importance  of  non-­pecuniary   wages   If   SWH   is   implemented   while   the   enterprises   are   unwilling   to   increase   products/services   prices   due   to   the   concern   of   external   competitiveness,   it   is   expected   that   additional  part-­‐time  employees  would  be  hired   instead   of   paying   extra   overtime   wages   to   original   workers.  On  average,  the  productivity  of   part-­‐time   workers   is   lower;   therefore   service   quality   would   also   turn   bad.   Meanwhile,   since   full  time  employees  would  engage  in  other  part-­‐ time   jobs   after   work,   extra   transportation   would   reduce  their  leisure  time  as  well  as  increase  their   living   costs.   After   all,   it   is   a   lose-­‐lose   situation.   In   fact,  both  employers  and  employees  overlooked   the   importance   of   non-­‐pecuniary   wages,   job   stability  and  flexible  working  hours  for  instance.   Many   European   countries   have   emphasized   the   use   of   non-­‐pecuniary   wages.   Numerous   foreign   studies,   such   as   Magnani   (2002),   pointed   out   that  the   difference   of   monetary   wages   received   by   a   given   employee   in   different   jobs   depends   on   the   difference   of   non-­‐pecuniary   wages.   In   other  words,  by  increasing  non-­‐pecuniary  wages,   both   parties   could   ease   a   certain   degree   of   dispute   on   monetary   wages.   At   the   same   time,   this   could   boost   staff   morale   as   well   as   productivity   and   lead   to   a   win-­‐win   situation   in   the   short-­‐run.   In   the   long   run,   the   government   should  solve  the  problem  of  high  property  prices   and  rents  so  that  conflicts  between  both  parties   could  be  reduced.    

 

 

 

 

 

If   an   improper   way   such   as   implementing   SWH   were   used   to   tackle   this   problem,   serious   consequences   would   result.   Once  a  law  is  introduced,  it  is  difficult  to  cancel   and  more  legislation  would  be  established  to  fix   defects   from   the   law.   The   flexibility   of   every   business   would   be   hindered   accordingly.   Additionally,  the  Global  Competitiveness  Report   2011-­‐2012   shows   restrictive   labour   regulations   is  ranked  5th  among  15  problematic  factors  for   doing   business.   This   indicates   if   SWH   is   set,   business  environment  in  HK  would  definitely  be   affected.  

Using  supply  side  policies  to  solve   the  conflict   During  the  period  of  SARS,  HK  suffered  a   severe   economic   downturn   with   deflation,   substantially   low   consumption   demand   and   historically   high   unemployment   rate.   To   work   out   this   problem,   HK   government   implemented   the   Individual   Visit   scheme   (IVS).   This   successfully  increased  the  demand  and  led  to  an   economic   recovery.   Since   then,   HK   government   has  relaxed  the  IVS.                      

 

 

 

 

 

 

 

7  


HKU  EFSI  Digest  –  Issue  I   October  the  31st,  2012  

      However,   compared   to   the   period   of   SARS,  HK  is  now  in  a  different  position  with  low   unemployment   rate   and   inflation.   Nevertheless,   the   government,   as   always,   is   less   active   in   supply  side  policy,  such  as  increasing  land  supply   and  planning  new  towns,  than  in  relaxing  the  IVS.   While   demand   continuously   increases   without   relative   increase   in   supply,   this   would   lead   to   increase  in  property  prices,  rents  and  price  level.     To   cope   with   high   living   cost,   employees   therefore   ask   for   more   labour   regulations   to   increase   their   wages   which   also   push   up   the   operation  cost  of  enterprises.  Hence,  enterprises   have   to   set   a   higher   price   for   their   products/services   and   inflation   would   then   be   more   serious.   Employees   would   then   seek   for   another   round   of   labour   regulations   to   be   enacted,  triggering  a  wage-­‐price  spiral.  We  must   specify   that   although   it   is   fine   to   stimulate   demand  by  relaxing  the  IVS,  HK  citizen  will  not   benefit   from   this   if   increase   in   supply   is   inadequate   to   cope   with   increase   in   demand.   This   is   also   the   reason   why   the   “multiple   entry   permit”   arrangement   for   non-­‐permanent   Shenzhen  residents  was  shelved  recently.   If   there   is   no   improvement   in   the   supply   side   policy,   HK   cannot   escape   from   the   vicious   circle.  In  this  unfavourable  condition,  local  SMEs   would  collapse  beforehand  since  they  could  not   afford   such   high   rental   and   wages   expenses.   Even  for  the  large  local  enterprises,  it  is  difficult   for   them   to   bear   these   expenses   continuously.   As   a   result,   most   of   the   local   enterprises   would   be   replaced   by   international   enterprises   who   can  afford  the  high  rental  and  wages  expenses.   The  thing  we  are  most  worried  about  is   when   there   is   a   better   business   opportunity   elsewhere   for   international   enterprises;   they   would   reduce   their   investment   in   HK.   At   that   time,  as  the  local  enterprises,  the  ones  that  can   really   stick   with   HK   in   event   of   a   downturn,   have   been   driven   out   in   the   first   place,   HK   economy   would  then  be  in  trouble.  We  are  not    

 

 

 

 

going  to  deny  the  contributions  of  international   enterprises;   however,   local   enterprises   are   the   foundation  of  HK  economy.   To   conclude,   we   suggest   the   HK   government   could   do   something   more   in   the   supply   side   by   increasing   land   and   housing   supply  and  better  planning  of  new  towns.  These   would  ease  the  conflicts  between  employers  and   employees.   In   addition,   the   community   could   also   fully   absorb   the   benefit   from   relaxing   the   IVS.   Finally,   when   setting   a   new   policy,   the   government   should   understand   the   reason   behind   and   not   be   blinded   by   phenomenon   in   front  of  our  eyes.    

  Taking   this   opportunity,   we   would   like   to     leave   a   question   for   your   discussion:   Do   you   think   Hong   Kong   should   implement   standard   working   hours?   What   are   the   economic  implications?    To   share   your   opinion,   send   it   to   us  at  alixe.leclercq@gmail.com      The  best  ones  will  be  published  in   our  next  issue!        

 

8  


HKU  EFSI  Digest  –  Issue  I   October  the  31st,  2012  

   

 

   

Economic  model  to  forecast  US  Presidential  Election  winner  

Don’t  miss:    

It   was   computed   by   Ray   Fair   (Yale),   after   having   analyzed   data   back   to   1916   elections.   This   simple   model   estimates   rightly   all   but   two   presidential  winners.      

 

   

VP  =  48.39  +  .672*G  -­‐  .654*P  +  0.990*Z  

 

With:    

  

VP  =  Democratic  share  of  the  two-­‐party  presidential  vote  in  2012   G  =   growth  rate  of  real  per  capita  GDP  in  the  first  3  quarters  of  2012   (annual  rate)   P   =   growth   rate   of   the   GDP   deflator   in   the   first   15   quarters   of   the   Obama  administration,  2009:1-­‐2012:3  (annual  rate)   Z   =   number   of   quarters   in   the   first   15   quarters   of   the   Obama   administration   in   which   the   growth  rate   of   real   per   capita   GDP   is   greater  than  3.2  percent  at  an  annual  rate  

http://www.stgallen-­‐symposium.org/Leaders-­‐of-­‐ Tomorrow/Student-­‐Essay-­‐Competition.aspx  

   

To  contribute:      

http://fairmodel.econ.yale.edu/vote2012/computev.htm   http://blogs.wsj.com/economics/2012/10/26/economic-­‐model-­‐predicts-­‐ narrow-­‐romney-­‐victory/  

 

Editorial  short  selection  of  economic  articles:    

Next  ChatterBox  session:    Wednesday  the   7th  of  November,  on  :  “The  impact  of  the   financial  crisis  on  investment  banking”     If  you  like  traveling  for  free,  meeting   amazing  people  and  that  you’re  good  at   writing,  participate  to  St  Gallen  Leaders  of   Tomorrow  students  essay  contest!  More   info  on:  

Suggestion,  criticism  or  encouragements  are   welcome!     If  you  wish  to  practice  your  writing  skills  or   simply  share  your  thoughts  on  an  economic   or  finance  topic,  send  us  an  email   (alixe.leclercq@gmail.com).  You  can  either   propose  your  own  topic  or  ask  for   suggestions.     If  you  know  of  writing  competitions  for   students,  please  do  let  us  know!   Do  contact  us  at  hkuefsi@gmail.com  if  you   have  any  questions  regarding  our  club!  

    Nobel  Prize     http://www.economist.com/news/finance-­‐and-­‐economics/21564836-­‐alvin-­‐roth-­‐and-­‐lloyd-­‐shapley-­‐have-­‐won-­‐year%E2%80%99s-­‐nobel-­‐ economics   McK  insider  trading   http://www.economist.com/blogs/schumpeter/2012/10/rajat-­‐gupta   Report  on  Huawei  and  ZTE   http://intelligence.house.gov/sites/intelligence.house.gov/files/documents/Huawei-­‐ZTE%20Investigative%20Report%20(FINAL).pdf  

 

Test  your  knowledge  &  take  an  economic  quiz!     http://www.economist.com/economist-­‐quiz  

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HKU EFSI Digest (October 2012)