August 1, 2011 1:47 PM EDT
Beneath the glistening skyscrapers of Hong Kong lies a much more mundane and dreary reality -- half the people of the former British colony live in subsidized housing and more than one-seventh is in poverty.
Despite a strong economy and torrid business with the Chinese mainland, Hong Kong is becoming a divided society – the “haves” are getting richer, and the “have-nots” are becoming desperate.
On the one hand, the island’s economy is humming along, with handsome annual GDP (estimated to grow by four percent to five percent in 2011) and low unemployment (3.4 percent in the first quarter of this year).
However, on the flip-side, high inflation and soaring real estate prices have thrown thousands of residents into dire straits.
In May, the government hiked its estimate for the inflation rate to 5.4 percent for this year, up from a prior forecast of 4.5 percent.
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Not surprisingly, incomes have failed to match the pace of inflation; Reportedly, real wages for Hong Kong residents are lower than they were a decade ago.
Of the island nation’s seven million residents, about 1.2 million are living on subsidies – and more than half the population reside in public housing.
Meanwhile, according to Forbes magazine, in Jan. 2011, the combined wealth of the 40 wealthiest individuals in Hong Kong soared by 20 percent to $163 billion in just one year.
Moreover, since the Hong Kong dollar is pegged to the ever-weakening U.S. greenback, inflationary pressures have worsened, especially with respect to food and fuel, both of which must be imported.
Adrian Mowat, JPMorgan Chase’s chief Asia and emerging-market strategist, recently told Bloomberg Television: “Hong Kong has a fixed exchange rate; at the top of a cycle, inflationary pressures build dramatically, Hong Kong becomes less competitive. And so we’d expect Hong Kong’s growth to slow next year. We’re very bearish on Hong Kong property, which quite frankly, is unaffordable for the bulk of the population.”
Part of the problem lies with Hong Kong’s intimate economic and political relations with its giant neighbor, China.
Largely due to mainland Chinese with very deep pockets who are snapping up luxury properties in Hong Kong (in tandem with record low interest rates and a shortage of land on the small island), home prices are climbing an astounding two percent every month, according to the country’s leader, chief executive Donald Tsang.
Since the start of 2009, housing prices have surged 70 percent.
In the first quarter of 2011, almost 40 percent of all luxury property buyers in Hong Kong were from mainland China, according to Centaline Property Agency Ltd.
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