This article first appeared in Forum, The Edge Malaysia Weekly on July 1, 2019 - July 7, 2019

For many years, Hong Kong’s reputation was that of a prosperous and successful city. But a dark side has been emerging: a significant part of the population is disaffected, especially the young, because of a feeling of being left out of the territory’s success.

Now it is this dark side that increasingly defines the territory’s image. Following June’s massive protests on Hong Kong streets, social and political reforms are urgently required. And for Asia and the world, what has happened in Hong Kong offers lessons in the post-economic miracle era as governments everywhere face a rising tide of social discontent.

Hong Kong has long been associated with laissez-faire economics — free competition, non-interference by the government and a level playing field. During the economic miracle in the second half of the 20th century, this old-fashioned form of capitalism, for all its defects, produced fast-growing incomes to a majority of people.

But the situation has changed. As its economy reaches a plateau and Hong Kong as a whole becomes less competitive in global markets, we are seeing the collateral damage caused by a system that frankly put growth and the blind pursuit of profit above all else.

Hong Kong’s economy is now dominated by cartels, with the provision of all sorts of services and goods subjected to oligopolistic arrangements — the product of a capitalistic jungle where the strongest survive and eventually dominate. The rich-poor gap is among the world’s highest. While the elite continues to pile up wealth, ordinary Hong Kong people generally have not been able to improve their well-being, taking into consideration adversities such as chronic overcrowding, environmental degradation and deteriorating civic pride.

There is no alternative to social and economic reforms in the territory. In fact, the frustrations of ordinary Hong Kong people — the feeling that they no longer have a stake in the success of the system — is the underlying cause of Hong Kong’s massive social disorder, although the immediate cause is the government’s attempt at putting together legislation that would have allowed suspected criminals to be extradited to China.

The turmoil will not go away even if the chief executive, Carrie Lam, resigns. Indeed, it is a pity that since 1997, Hong Kong has seen a succession of chief executives, each of whom was too distracted by immediate problems, and served for too short a period, to focus on long-term solutions.

What is needed now is a more enlightened form of capitalism, still pro-business and pro-free market, but fairer, more inclusive and more sustainable.

In today’s Hong Kong, medium to small businesses and entrepreneurs — meaning local Hong Kong players — often find it difficult to establish themselves against entrenched industry leaders, consisting generally of the Hong Kong super-rich and mainland Chinese and foreign companies.

Hong Kong’s devotion to a level playing field has come down to this — it pits small guys in competition against established big guys in an economy that is no longer developing fast enough to accommodate all.

While such a set-up may facilitate corporate profits, it eventually leaves ordinary people with a feeling of being left out and hopeless. It also reduces competition and stifles entrepreneurship, which is exactly what capitalism is not supposed to do.

In responding, Hong Kong’s government needs to be more interventionist. It needs to unapologetically improve the access enjoyed by local people to training, employment and commercial opportunities. It needs to be much tougher on monopolistic practices. (There may be a few monopolies that can be justified because their scale is critical to maintaining Hong Kong’s global advantage, but there are very few of these.)

Hong Kong needs more deregulation and focus on consumer rights.

Fiscal reform is required, starting with a critical review of the so-called low taxation regime. Appearances to the contrary, the typical Hong Kong family is subjected to relatively high tax, in the form of indirect taxation arising from high rents and exorbitant property prices.

A key reform would be to break up the real estate cartel. Because so much wealth in Hong Kong is tied to real estate, the business lobbies tied directly or indirectly to property development represent a strong vested interest that has resisted reform, both before and after the end of British colonial rule in 1997.

Bold therapy is recommended. The rules of the game have to be redrawn to open up the field to many more formats and players, increasing competition and giving the public access to a much wider stock and range of public and private housing.

On the supply side, the government’s plans for massive land reclamation must be accelerated. A significant part of Hong Kong’s land area is covered by country parks. A part of these massive parks can be converted into quality middle-class housing. Later, as land is reclaimed from the sea, it may be possible to create new parks.

The Hong Kong government also needs to take into account the national push to promote the Greater Bay region, covering the Pearl River Delta of southern China, including Hong Kong. Large-scale transport infrastructure now crisscrosses this region, including the world’s longest sea bridge, which links Hong Kong, Macau and Guangdong province. A precedent has been set with the mainland allowing Macau to make use of neighbouring Zhuhai’s Hengqin island.

Why shouldn’t the mainland authorities also lease land in Guangdong for use by Hong Kong? Such land would come under Hong Kong’s administration, and they could be used for high-quality housing estates. Or Hong Kong could relocate some of its institutions of higher learning, healthcare facilities or its container port to the new area.

Hong Kong has the necessary financial resources to undertake reform. With US$38,000 in annual per capita income, about the same level as France, it now makes sense to focus on how to make its population happy, rather than stick to a default choice that emphasises growth for growth’s sake.

Not to forget that Hong Kong has built up huge reserves, representing the savings of generations, managed by the Hong Kong Monetary Authority (HKMA). The money belongs to the people of Hong Kong and are intended to fight emergencies, which describes the situation today. Simply, reforms can be expensive, and it is good to know a piggy bank is available to handle temporary disruptions. (The latest Bloom-

berg data lists the HKMA as among the 10 largest foreign holders of US Treasury bonds while China is the biggest holder, followed by Japan.)

Of course, China, which has sovereignty over Hong Kong, has to be consulted about any major new policies. That is not a worry as it would not be in Beijing’s interest to oppose such reforms. On the contrary, mainland China itself is the beneficiary of social and economic changes that have transformed the country in just two generations, truly a stunning and historic achievement.

Obviously, China wishes Hong Kong to be stable and prosperous. Under the agreement signed between China and Britain, Hong Kong’s status as a special autonomous territory will expire in 2047. Only 28 years remain, making it critical to act courageously now to give Hong Kongers a significant stake in their community as part of preparations to face the new challenges looming on the horizon.

Datuk Seri Cheah Cheng Hye, based in Hong Kong, is the co-chairman, co-chief investment officer and co-founder of Hong Kong-listed Value Partners Group. He also serves on the board of Hong Kong Exchanges and Clearing as an independent non-executive director. He previously worked as a journalist. The article above reflects his personal views only.

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