From personal and family financial planning to policy formulation aimed at sustained improvement in livelihoods of the community, people’s living expenses constitute a crucial factor. As described by the Census and Statistics Department of the Hong Kong SAR Government (see Note 1), the Consumer Price Index (CPI) measures the changes over time in the price levels of consumer commodities and services typically purchased by households. A rise in the CPI indicates that, with expenses remaining unchanged, the amount of commodities and services people can buy decreases. In other words, changes in the CPI reflect the inflation faced by consumers. However, given the CPI’s discrepancies in calculating people’s daily expenses, this article discusses its limitations and also proposes using the Everyday Price Index (EPI).

Blind spots in the current index

The Census and Statistics Department announces monthly CPI changes, the predominant indicator of local price variations. The public can access the data through news media. Nevertheless, with an inadequate understanding of the CPI, people may be under the misconception that the price changes they observe in their daily activities are fully reflected in the CPI readings. As a matter of fact, a feature news report last year attempted to debunk the “myth of low inflation”. A number of the interviewees in the news story projected an actual inflation rate higher than the official data released and regarded the latter as “unrealistic” (see Note 2).

Objectively speaking, there are indeed blind spots in the CPI, which make it a less-than-ideal index of daily living costs. One of the reasons is that the less frequent expenditure section has a higher weight in the composition of the index. In the 2019/20-based Composite CPI (see Note 3) prepared by the Census and Statistics Department, housing has the highest expenditure weight, exceeding 40% (see Table). Meanwhile, expenses such as food and transport are more frequent than non-daily expenditures (e.g. rent and furniture), exerting a more notable effect on people’s impression of inflation.

Table

Take the statistical data between 2019 and 2024, for example (see Note 4). In the Composite CPI (CCPI), the year-on-year change rates of housing are lower than those of food and transport. Due to the highest expenditure weight of housing (see Figure 1), the CPI is more susceptible to price changes in housing and less sensitive to those in daily expenses such as food and transport. Consequently, the daily living costs during this period were underestimated.

People are generally more concerned about price rises in commodities and services but are less impressed by, or aware of, price cuts, which is a form of “memory bias”. Daily-consumed commodities and services experience not only higher frequency of expenditure but also more frequent price changes. With reference to a Polish academic study (see Note 5) on consumers’ perception of year-on-year inflation rates between 2004 and 2017, up to 99% of respondents to a questionnaire survey indicated that they were unaware of the 28-month-long deflation from July 2014 to October 2016 (see Figure 2). Of these respondents, 43% stated that prices remained unchanged and 53% were under the impression that prices increased instead of decreased (see Figure 3).

Moreover, the base effect can mislead people to overestimate inflation. For instance, a $1 price rise in lettuce selling at $10 per catty at wet markets represents a 10% hike. The low base value of daily expenses can easily cause the general public to think inflation is higher than it is. The Polish study also demonstrated that even when inflation perception more or less aligned with the actual CPI inflation, respondents still overestimated inflation by an average of 10 percentage points (see Figure 2). The author further pointed out that discrepancies between the CPI and public perception of inflation were not exclusive to Poland but were also common among EU countries, suggesting that the CPI might not reasonably estimate changes in daily living costs. To summarize the above three points, the CPI as an inflation indicator does deviate from people’s daily-life experiences, thus conveying the impression of being unrealistic.

Unveiling the EPI

In view of the fact that the CPI fails to accurately measure changes in daily living costs, the American Institute of Economic Research has introduced the EPI as a more reliable price indicator (see Note 6). Unlike the CPI, the EPI covers only daily goods and services and purchasing these items cannot be readily delayed or cancelled. These goods and services must satisfy the following two requirements. First, they must be purchased frequently (at least once a month); therefore, durable goods (e.g. furniture and household electrical appliances) are excluded. Second, their prices must not be fixed for six months or more through, for example, a contract; hence, contract-bound expenses such as rent are not covered (see Note 7). The EPI more closely reflects daily expenses and can more correctly register changes in daily living costs in comparison with the CPI. In fact, the compilation of the EPI is simple and straightforward. It can be established based on the CPI by removing items not covered by the EPI and adjusting expenditure weights accordingly.

By referencing the EPI, people should be able to more effectively plan their personal financial expenditures. Not only can the grassroots obtain comprehensive and objective data when demanding wage adjustments, but the government can also have a better grasp of people’s livelihoods. In contrast, the CPI as a price indicator has been criticized because the inflation perceived by the general public deviates significantly from the actual inflation figures.

While this can be attributed to an inadequate understanding among the public regarding the composition of inflation, it is undeniable that the CPI cannot precisely reflect daily living costs. If the government continues to rely solely on such a tool, it would inevitably give the impression that it is out of touch with reality.

By approaching this issue through policy, the Government can incorporate the EPI as a reference index for social-welfare adjustments. As for the Social Security Allowance Scheme (e.g. the Old Age Allowance) and the Comprehensive Social Security Assistance Scheme, which have been pegged to the CPI, the upward adjustment of allowances has been less than ideal. Relevant policies could better benefit the public by incorporating the EPI as a more realistic indicator.

Limitations and applications of the indices

Yet, the EPI is not perfect and may overestimate the daily living costs across the community. As a matter of fact, when people see a price rise in a certain product, they naturally seek a replacement, so their actual expenses may not necessarily go up. Needless to say, spending habits vary from person to person. The EPI is for reference only and everyone should estimate changes in their expenses according to their own consumption habits.

We must emphasize that the EPI can by no means replace the CPI. It is indeed only right for the two to co-exist. While the EPI reflects changes in people’s regular daily expenses, the CPI provides an overall picture of consumer price changes in society, including both regular and irregular expenditures. The CPI is a major index widely utilized around the world. Considering the different purposes and functions of the two indices, users should be flexible when using or referencing them in various scenarios.

For instance, for the government and the academic sector, apart from recurrent expenditures, since constant monitoring of overall price changes is conducive to shaping policies and to comparing prices across regions, the CPI is a more suitable reference. When it comes to daily living costs, the EPI can more accurately reflect expense changes. For this reason, the EPI is a valuable tool for personal finance planning and a useful reference for social-welfare policy development.

Last but not least, different indices have different pros and cons. While an ideal index should be simple to use and easy to understand, users also need to grasp its uses and limitations and must not blindly accept or misuse it. Otherwise, no amount of indices can provide them with any real help.

As mentioned at the beginning of this article, given their inadequate knowledge of the CPI, members of the public often misunderstand the implications of the data. In this connection, the government should be more proactive in stepping up public education and publicity. In addition to introducing the EPI as well to account for living cost changes in response to social needs, officials should further explain to the community the uses of different indices to clear up any misconceptions.

Note 1: https://www.censtatd.gov.hk/en/data/stat_report/product/B8XX0021/att/B8XX0021.pdf

Note 2： Now Business News, 經緯線 低通脹之謎

https://www.youtube.com/watch?v=_12qhhUQM2Y&t=525s (interview duration: 08:36–10:32）

Note 3：https://www.censtatd.gov.hk/tc/EIndexbySubject.html?pcode=B8XX0029&scode=270

In addition, starting with April 2024 as the reference month, the Census and Statistics Department updated the reference period for the CPI expenditure weights to the entire year of 2023. This update does not affect the descriptions of expenditure weights in this article, except for slight differences in the actual figures.

Note 4：

https://www.censtatd.gov.hk/en/data/stat_report/product/D5600001/att/D5600001B2024MM06B.xlsx

Note 5： https://link-springer-com.eproxy.lib.hku.hk/article/10.1007/s41549-019-00036-9

Note 6： https://www.aier.org/research/capturing-shifts-in-everyday-prices/

Note 7： https://www.aier.org/wp-content/uploads/2015/07/WP004-EPI-Polina-Vlasenko-PV.pdf

From personal and family financial planning to policy formulation aimed at sustained improvement in livelihoods of the community, people’s living expenses constitute a crucial factor. As described by the Census and Statistics Department of the Hong Kong SAR Government (see Note 1), the Consumer Price Index (CPI) measures the changes over time in the price levels of consumer commodities and services typically purchased by households. A rise in the CPI indicates that, with expenses remaining unchanged, the amount of commodities and services people can buy decreases. In other words, changes in the CPI reflect the inflation faced by consumers. However, given the CPI’s discrepancies in calculating people’s daily expenses, this article discusses its limitations and also proposes using the Everyday Price Index (EPI).

Blind spots in the current index

The Census and Statistics Department announces monthly CPI changes, the predominant indicator of local price variations. The public can access the data through news media. Nevertheless, with an inadequate understanding of the CPI, people may be under the misconception that the price changes they observe in their daily activities are fully reflected in the CPI readings. As a matter of fact, a feature news report last year attempted to debunk the “myth of low inflation”. A number of the interviewees in the news story projected an actual inflation rate higher than the official data released and regarded the latter as “unrealistic” (see Note 2).

Objectively speaking, there are indeed blind spots in the CPI, which make it a less-than-ideal index of daily living costs. One of the reasons is that the less frequent expenditure section has a higher weight in the composition of the index. In the 2019/20-based Composite CPI (see Note 3) prepared by the Census and Statistics Department, housing has the highest expenditure weight, exceeding 40% (see Table). Meanwhile, expenses such as food and transport are more frequent than non-daily expenditures (e.g. rent and furniture), exerting a more notable effect on people’s impression of inflation.

Table

Take the statistical data between 2019 and 2024, for example (see Note 4). In the Composite CPI (CCPI), the year-on-year change rates of housing are lower than those of food and transport. Due to the highest expenditure weight of housing (see Figure 1), the CPI is more susceptible to price changes in housing and less sensitive to those in daily expenses such as food and transport. Consequently, the daily living costs during this period were underestimated.

People are generally more concerned about price rises in commodities and services but are less impressed by, or aware of, price cuts, which is a form of “memory bias”. Daily-consumed commodities and services experience not only higher frequency of expenditure but also more frequent price changes. With reference to a Polish academic study (see Note 5) on consumers’ perception of year-on-year inflation rates between 2004 and 2017, up to 99% of respondents to a questionnaire survey indicated that they were unaware of the 28-month-long deflation from July 2014 to October 2016 (see Figure 2). Of these respondents, 43% stated that prices remained unchanged and 53% were under the impression that prices increased instead of decreased (see Figure 3).

Moreover, the base effect can mislead people to overestimate inflation. For instance, a $1 price rise in lettuce selling at $10 per catty at wet markets represents a 10% hike. The low base value of daily expenses can easily cause the general public to think inflation is higher than it is. The Polish study also demonstrated that even when inflation perception more or less aligned with the actual CPI inflation, respondents still overestimated inflation by an average of 10 percentage points (see Figure 2). The author further pointed out that discrepancies between the CPI and public perception of inflation were not exclusive to Poland but were also common among EU countries, suggesting that the CPI might not reasonably estimate changes in daily living costs. To summarize the above three points, the CPI as an inflation indicator does deviate from people’s daily-life experiences, thus conveying the impression of being unrealistic.

Unveiling the EPI

In view of the fact that the CPI fails to accurately measure changes in daily living costs, the American Institute of Economic Research has introduced the EPI as a more reliable price indicator (see Note 6). Unlike the CPI, the EPI covers only daily goods and services and purchasing these items cannot be readily delayed or cancelled. These goods and services must satisfy the following two requirements. First, they must be purchased frequently (at least once a month); therefore, durable goods (e.g. furniture and household electrical appliances) are excluded. Second, their prices must not be fixed for six months or more through, for example, a contract; hence, contract-bound expenses such as rent are not covered (see Note 7). The EPI more closely reflects daily expenses and can more correctly register changes in daily living costs in comparison with the CPI. In fact, the compilation of the EPI is simple and straightforward. It can be established based on the CPI by removing items not covered by the EPI and adjusting expenditure weights accordingly.

By referencing the EPI, people should be able to more effectively plan their personal financial expenditures. Not only can the grassroots obtain comprehensive and objective data when demanding wage adjustments, but the government can also have a better grasp of people’s livelihoods. In contrast, the CPI as a price indicator has been criticized because the inflation perceived by the general public deviates significantly from the actual inflation figures.

While this can be attributed to an inadequate understanding among the public regarding the composition of inflation, it is undeniable that the CPI cannot precisely reflect daily living costs. If the government continues to rely solely on such a tool, it would inevitably give the impression that it is out of touch with reality.

By approaching this issue through policy, the Government can incorporate the EPI as a reference index for social-welfare adjustments. As for the Social Security Allowance Scheme (e.g. the Old Age Allowance) and the Comprehensive Social Security Assistance Scheme, which have been pegged to the CPI, the upward adjustment of allowances has been less than ideal. Relevant policies could better benefit the public by incorporating the EPI as a more realistic indicator.

Limitations and applications of the indices

Yet, the EPI is not perfect and may overestimate the daily living costs across the community. As a matter of fact, when people see a price rise in a certain product, they naturally seek a replacement, so their actual expenses may not necessarily go up. Needless to say, spending habits vary from person to person. The EPI is for reference only and everyone should estimate changes in their expenses according to their own consumption habits.

We must emphasize that the EPI can by no means replace the CPI. It is indeed only right for the two to co-exist. While the EPI reflects changes in people’s regular daily expenses, the CPI provides an overall picture of consumer price changes in society, including both regular and irregular expenditures. The CPI is a major index widely utilized around the world. Considering the different purposes and functions of the two indices, users should be flexible when using or referencing them in various scenarios.

For instance, for the government and the academic sector, apart from recurrent expenditures, since constant monitoring of overall price changes is conducive to shaping policies and to comparing prices across regions, the CPI is a more suitable reference. When it comes to daily living costs, the EPI can more accurately reflect expense changes. For this reason, the EPI is a valuable tool for personal finance planning and a useful reference for social-welfare policy development.

Last but not least, different indices have different pros and cons. While an ideal index should be simple to use and easy to understand, users also need to grasp its uses and limitations and must not blindly accept or misuse it. Otherwise, no amount of indices can provide them with any real help.

As mentioned at the beginning of this article, given their inadequate knowledge of the CPI, members of the public often misunderstand the implications of the data. In this connection, the government should be more proactive in stepping up public education and publicity. In addition to introducing the EPI as well to account for living cost changes in response to social needs, officials should further explain to the community the uses of different indices to clear up any misconceptions.

Note 1: https://www.censtatd.gov.hk/en/data/stat_report/product/B8XX0021/att/B8XX0021.pdf

Note 2： Now Business News, 經緯線 低通脹之謎

https://www.youtube.com/watch?v=_12qhhUQM2Y&t=525s (interview duration: 08:36–10:32）

Note 3：https://www.censtatd.gov.hk/tc/EIndexbySubject.html?pcode=B8XX0029&scode=270

In addition, starting with April 2024 as the reference month, the Census and Statistics Department updated the reference period for the CPI expenditure weights to the entire year of 2023. This update does not affect the descriptions of expenditure weights in this article, except for slight differences in the actual figures.

Note 4：

https://www.censtatd.gov.hk/en/data/stat_report/product/D5600001/att/D5600001B2024MM06B.xlsx

Note 5： https://link-springer-com.eproxy.lib.hku.hk/article/10.1007/s41549-019-00036-9

Note 6： https://www.aier.org/research/capturing-shifts-in-everyday-prices/

Note 7： https://www.aier.org/wp-content/uploads/2015/07/WP004-EPI-Polina-Vlasenko-PV.pdf

The three-day 2024 Summit of the Forum on China-Africa Cooperation (FOCAC) kicks off in Beijing today, marking the fourth time the meeting has been held as a summit in the past 24 years. Reportedly this is a mega event in Beijing attended by the most foreign heads of state since the COVID-19 pandemic. The last FOCAC in Beijing was held in 2018, when the trade war and suppression of Chinese high-tech industry initiated by the then US President Donald Trump just started. At that time, China’s electric vehicle industry was still under the radar, the power of artificial intelligence remained in the imagination, the carnage of the Russia-Ukraine war and Israeli-Palestinian conflict had yet to come to pass, let alone the unforeseeable worldwide ravages brought by the coronavirus pandemic spanning several years.

GDP growth requires more than raw material and agricultural exports

However, in this ever-changing world, the tumultuous turn of events over the past few years has not only radically transformed the global landscape but has also nudged Africa from a bit part to the centre of international political and economic stage. Particularly noteworthy is the admission of the African Union (AU) as a permanent member of the G20 in September 2023, giving African countries a stronger voice in international affairs. It is well-known that the G20, as the locus of the greatest political and economic power in the world, accounts for 85% of global gross domestic product (GDP) and 75% of international trade. Previously, South Africa was the only African member of the G20. With more than 50 African members, representing almost the entire continent, the AU plays a role in the G20 similar to that of the European Union (EU). Another example is that several months after the Gaza conflict, South Africa filed a case against Israel for committing genocide at the International Court of Justice. That such a small country as South Africa would take issue with major international affairs not directly related to its own interests would have been unimaginable in the past. Moreover, in addition to a wealth of natural resources, Africa also has 54 votes to offer at the United Nations.

While geopolitical change has enhanced its status, Africa’s economic performance remains lacklustre in general. As the world’s second-largest continent in terms of population and land area (20% of the Earth’s land surface), Africa boasts the youngest median age and rich reserves of natural resources. Nonetheless, it has the lowest GDP per capita, particularly in sub-Saharan Africa. According to World Bank data, in 2023, sub-Saharan Africa’s GDP per capita based on purchasing power parity stood at only US$4,374, a paltry 8.3% of that among high-income members of the Organization for Economic Cooperation and Development (OECD). Even when compared with other developing regions, it is merely 22% of that in Latin America and 52% of that in South Asia. Africa’s per-capita income compared to the global average fell from 30% in 1990 to 21% in 2023. Due to its slow economic growth, Africa is lagging farther and farther behind the global average.

When it comes to economic development after the Second World War, Asia has naturally been the top performer worldwide, with an average growth rate surpassing that of Europe, the US, and other developing economies. In Asia, Japan was the first country to achieve an economic breakthrough, followed by the “Four Little Dragons” and eventually other economies in Southeast Asia. Decades after its reform and opening-up, China has achieved unparallelled economic performance. The growth of these Asian economies shares a common factor ­­— their efforts have been geared towards strengthening trade to align with the global economy. Almost all the economies with the largest trade volumes have the highest per-capita incomes. There is a positive correlation between income and trade: higher income typically leads to greater consumption of all goods, including foreign products and services, thereby increasing imports. On the other hand, the more important point is that trade expands markets and enhances economic benefits from competition by fully leveraging relative advantages. Seen from this perspective, one reason for Africa’s slow economic development is its relatively small trade volume.

Africa’s foreign trade accounts for only 3% of the world total, representing too low a share relative to its population, land size, and resources. Over the course of its economic development, Latin America has tended to adopt import substitution policies to support domestic industries. In 2023, its trade accounts for 7.3% of the global total. By adopting export promotion policies, Asia has even boosted its share of world trade to 48%.

Africa exports raw materials, ranging from oil and minerals to agricultural products, mainly in exchange for higher value-added products. The terms of trade, i.e. ratio of export prices to import prices, are therefore unfavourable. Maintaining these trade patterns from colonial times means Africa has limited bargaining power in the international market. Meanwhile, 70% of international trade today involves manufacturing value chains, where African countries – primarily exporting raw materials and agricultural products – do not have a high level of participation. The failure of the World Trade Organization (WTO) Doha Round of negotiations has made it even more difficult to further open up the global market for agricultural products.

Leveraging the EU model to alleviate poverty for 50 million in Africa

Not only does Africa occupy just a tiny share of the global trade but the share of the continent’s domestic trade in its overall trade is also low at merely around 13%. In other words, trade between African countries and overseas countries far outweighs trade amongst African countries, a scenario different from that in other continents. The share of domestic trade is approximately 70% in European countries, 60% in Asian countries, and 40% in North American countries. Africa’s low ratio of domestic trade also has to do with the above-mentioned fact that its exports mainly consist of natural resources. Apart from oil and agricultural products, Africa has abundant reserves of minerals such as cobalt, chrome, manganese, phosphate, platinum, and diamonds, which account for over 60% or even over 70% of the world total. Since the buyers are mostly high-income industrialized nations, these products are naturally exported overseas. In addition, the high costs of domestic trade in Africa can be attributed to its backward infrastructure, inefficient customs procedures, lack of unified product standards, etc. Nevertheless, as some commentators have pointed out, Africa’s domestic trade figures have been underestimated because a significant portion bypasses customs through lengthy porous borders to evade tariffs and minimize administrative hassle. According to research estimates, illicit cross-border trade has caused Africa’s domestic trade to be underestimated by 11% to 40%.

That being said, even if Africa’s domestic trade is worth more than the official records indicate, the continent still needs to further build up its trade both continent-wide and worldwide to drive economic development. In the face of the WTO’s powerlessness and the ever-rising protectionism, Africa has no choice but to cooperate with its like-minded partners to strengthen its trade. The African Continental Free Trade Area (AfCFTA) Agreement, which took effect in 2019, is the fruit of this labour, bearing the high hopes of all partners. Developed on the basis of domestic trade agreements in the continent, the AfCTFA Agreement covers the lowering of tariffs, the formulation of origin rules, the refining of trade payment systems, along similar lines to many other trade pacts. The Agreement further aims to create a single market, reminiscent of the early stages of the EU. By now, nearly 50 African countries have joined the AfCFTA, covering nearly the entire African continent. The World Bank estimates that, if the Agreement be fully implemented, Africa’s extremely poor population would decline by 50 million by 2035 and its income would surge by 9%. This would be seen as a landmark in economic growth.

Over the years, China has maintained good economic cooperation relations with Third World countries in Asia, Africa, and Latin America. Even in the early stages of its reform and opening-up, China had already provided aid to African nations. A particularly notable case was the construction of the Tanzania-Zambia Railway project, which was supported by China in the early 1970s. To date, 52 African countries have become signatories to the Belt and Road Initiative. With the ongoing development of the initiative, it is hoped that China’s participation in a multitude of infrastructure projects in Africa will serve to establish an extensive transportation network across the continent. As a result, the transportation costs will shrink and the international trade of African countries will expand. The economic development of Africa undoubtedly encompasses numerous factors and challenges. However, given the continent’s size and population, the outcome is sure to not only benefit the African people but also facilitate the world’s overall growth.

The three-day 2024 Summit of the Forum on China-Africa Cooperation (FOCAC) kicks off in Beijing today, marking the fourth time the meeting has been held as a summit in the past 24 years. Reportedly this is a mega event in Beijing attended by the most foreign heads of state since the COVID-19 pandemic. The last FOCAC in Beijing was held in 2018, when the trade war and suppression of Chinese high-tech industry initiated by the then US President Donald Trump just started. At that time, China’s electric vehicle industry was still under the radar, the power of artificial intelligence remained in the imagination, the carnage of the Russia-Ukraine war and Israeli-Palestinian conflict had yet to come to pass, let alone the unforeseeable worldwide ravages brought by the coronavirus pandemic spanning several years.

GDP growth requires more than raw material and agricultural exports

However, in this ever-changing world, the tumultuous turn of events over the past few years has not only radically transformed the global landscape but has also nudged Africa from a bit part to the centre of international political and economic stage. Particularly noteworthy is the admission of the African Union (AU) as a permanent member of the G20 in September 2023, giving African countries a stronger voice in international affairs. It is well-known that the G20, as the locus of the greatest political and economic power in the world, accounts for 85% of global gross domestic product (GDP) and 75% of international trade. Previously, South Africa was the only African member of the G20. With more than 50 African members, representing almost the entire continent, the AU plays a role in the G20 similar to that of the European Union (EU). Another example is that several months after the Gaza conflict, South Africa filed a case against Israel for committing genocide at the International Court of Justice. That such a small country as South Africa would take issue with major international affairs not directly related to its own interests would have been unimaginable in the past. Moreover, in addition to a wealth of natural resources, Africa also has 54 votes to offer at the United Nations.

While geopolitical change has enhanced its status, Africa’s economic performance remains lacklustre in general. As the world’s second-largest continent in terms of population and land area (20% of the Earth’s land surface), Africa boasts the youngest median age and rich reserves of natural resources. Nonetheless, it has the lowest GDP per capita, particularly in sub-Saharan Africa. According to World Bank data, in 2023, sub-Saharan Africa’s GDP per capita based on purchasing power parity stood at only US$4,374, a paltry 8.3% of that among high-income members of the Organization for Economic Cooperation and Development (OECD). Even when compared with other developing regions, it is merely 22% of that in Latin America and 52% of that in South Asia. Africa’s per-capita income compared to the global average fell from 30% in 1990 to 21% in 2023. Due to its slow economic growth, Africa is lagging farther and farther behind the global average.

When it comes to economic development after the Second World War, Asia has naturally been the top performer worldwide, with an average growth rate surpassing that of Europe, the US, and other developing economies. In Asia, Japan was the first country to achieve an economic breakthrough, followed by the “Four Little Dragons” and eventually other economies in Southeast Asia. Decades after its reform and opening-up, China has achieved unparallelled economic performance. The growth of these Asian economies shares a common factor ­­— their efforts have been geared towards strengthening trade to align with the global economy. Almost all the economies with the largest trade volumes have the highest per-capita incomes. There is a positive correlation between income and trade: higher income typically leads to greater consumption of all goods, including foreign products and services, thereby increasing imports. On the other hand, the more important point is that trade expands markets and enhances economic benefits from competition by fully leveraging relative advantages. Seen from this perspective, one reason for Africa’s slow economic development is its relatively small trade volume.

Africa’s foreign trade accounts for only 3% of the world total, representing too low a share relative to its population, land size, and resources. Over the course of its economic development, Latin America has tended to adopt import substitution policies to support domestic industries. In 2023, its trade accounts for 7.3% of the global total. By adopting export promotion policies, Asia has even boosted its share of world trade to 48%.

Africa exports raw materials, ranging from oil and minerals to agricultural products, mainly in exchange for higher value-added products. The terms of trade, i.e. ratio of export prices to import prices, are therefore unfavourable. Maintaining these trade patterns from colonial times means Africa has limited bargaining power in the international market. Meanwhile, 70% of international trade today involves manufacturing value chains, where African countries – primarily exporting raw materials and agricultural products – do not have a high level of participation. The failure of the World Trade Organization (WTO) Doha Round of negotiations has made it even more difficult to further open up the global market for agricultural products.

Leveraging the EU model to alleviate poverty for 50 million in Africa

Not only does Africa occupy just a tiny share of the global trade but the share of the continent’s domestic trade in its overall trade is also low at merely around 13%. In other words, trade between African countries and overseas countries far outweighs trade amongst African countries, a scenario different from that in other continents. The share of domestic trade is approximately 70% in European countries, 60% in Asian countries, and 40% in North American countries. Africa’s low ratio of domestic trade also has to do with the above-mentioned fact that its exports mainly consist of natural resources. Apart from oil and agricultural products, Africa has abundant reserves of minerals such as cobalt, chrome, manganese, phosphate, platinum, and diamonds, which account for over 60% or even over 70% of the world total. Since the buyers are mostly high-income industrialized nations, these products are naturally exported overseas. In addition, the high costs of domestic trade in Africa can be attributed to its backward infrastructure, inefficient customs procedures, lack of unified product standards, etc. Nevertheless, as some commentators have pointed out, Africa’s domestic trade figures have been underestimated because a significant portion bypasses customs through lengthy porous borders to evade tariffs and minimize administrative hassle. According to research estimates, illicit cross-border trade has caused Africa’s domestic trade to be underestimated by 11% to 40%.

That being said, even if Africa’s domestic trade is worth more than the official records indicate, the continent still needs to further build up its trade both continent-wide and worldwide to drive economic development. In the face of the WTO’s powerlessness and the ever-rising protectionism, Africa has no choice but to cooperate with its like-minded partners to strengthen its trade. The African Continental Free Trade Area (AfCFTA) Agreement, which took effect in 2019, is the fruit of this labour, bearing the high hopes of all partners. Developed on the basis of domestic trade agreements in the continent, the AfCTFA Agreement covers the lowering of tariffs, the formulation of origin rules, the refining of trade payment systems, along similar lines to many other trade pacts. The Agreement further aims to create a single market, reminiscent of the early stages of the EU. By now, nearly 50 African countries have joined the AfCFTA, covering nearly the entire African continent. The World Bank estimates that, if the Agreement be fully implemented, Africa’s extremely poor population would decline by 50 million by 2035 and its income would surge by 9%. This would be seen as a landmark in economic growth.

Over the years, China has maintained good economic cooperation relations with Third World countries in Asia, Africa, and Latin America. Even in the early stages of its reform and opening-up, China had already provided aid to African nations. A particularly notable case was the construction of the Tanzania-Zambia Railway project, which was supported by China in the early 1970s. To date, 52 African countries have become signatories to the Belt and Road Initiative. With the ongoing development of the initiative, it is hoped that China’s participation in a multitude of infrastructure projects in Africa will serve to establish an extensive transportation network across the continent. As a result, the transportation costs will shrink and the international trade of African countries will expand. The economic development of Africa undoubtedly encompasses numerous factors and challenges. However, given the continent’s size and population, the outcome is sure to not only benefit the African people but also facilitate the world’s overall growth.

Dr Maurice Tse and Mr Clive Ho

28 August 2024

In this day and age, when social media is all the rage and artificial intelligence (AI) along with digital transformation are advancing in leaps and bounds, the rampant production and dissemination of information can influence personal behaviour and investment decisions. The phenomenon may also potentially incite panic in society and the market, giving rise to a credibility crisis. In January 2024, the World Economic Forum declared misinformation and disinformation as the greatest short-term risks worldwide.

How can inaccurate information and deceiving information be so alarmingly destructive? The answer lies in the fact that, when deployed with conspiracy theories, such information can come across as fully credible, leaving the general public completely at its mercy. With the world being constantly flooded with information that is hard to verify, political polarization becoming increasingly prevalent, and the global economic downturn showing no sign of abating, rumours and conjectures abound. These range from conspiracy theories about currency wars to allegations that the US moon landing was faked.

The steep price of hocus-pocus

Time is of utmost importance in financial investment. Even within the infinitesimal span of a few milliseconds, a single news update or social media post can trigger price fluctuations in the market. In 2019, Roberto Cavazos, a professor at the University of Baltimore’s School of Business in the US, and the cybersecurity company CHEQ jointly published a research report (see 【Note 1】). The publication drew attention to the fact that every year, stock market losses resulting from fake news amount to US$39 billion. Investors’ decisions influenced by misinformation sustain losses of around US$17 billion on an annual basis (see Figure).

For companies targeted by disinformation attacks, their annual expenditure on reputation management reaches approximately US$9.54 billion. Their annual expenditure on addressing false information in the healthcare sector is around US$9 billion, with the greatest costs incurred in measures to combat fake news about the anti-vaccine campaign and climate change. Global losses induced by disinformation amount to a total of US$78.2 billion.

Financial losses for many in pump and dump schemes

It is widely known that political election campaigns are not immune to disinformation. Research shows that approximately US$300 million is spent annually on phoney political ads. During the 2020 US presidential election, at least US$200 million was spent on fake news. As also indicated by researchers, their estimates only illustrate the basic direct costs. The real underlying costs far exceed the estimated figures.

Of the journalists surveyed in a report released by the US Pew Research Centre in 2022, 26% of the respondents indicate that they have unknowingly reported news containing disinformation. In their opinion, identifying disinformation is more and more challenging, especially as the advancement of AI technology facilitates the spread of false information. According to a 2023 survey conducted by the insurance company Nationwide, 34% of American non-retiree investors aged between 18 and 54 have been influenced to make investments based on misleading financial information (e.g. pump and dump schemes) found on the internet or social media. Not only have investors suffered losses but the market’s credibility has also been undermined as a result.

As mentioned in the research study by Arcuri et al. published in the Journal of Economics and Business in 2023 (see 【Note 2】), some investors might be unable to agree on the true value of a company due to their failure to distinguish between real and fake news. Consequently, the target company’s stock price dances to the tune of disinformation. The study analyses fake news originating from overseas but released in America and Europe from 2007 to 2019. In terms of stock returns, the findings demonstrate that unfavourable fake news generates substantial short-term negative impacts while favourable or neutral news has minimal impacts.

Conspiracy theories bleeding into economics

What is even worse, under the echo-chamber effect of social media, all sorts of unverifiable conspiracy theories have gained wide currency and approval. One notable example is the allegation that the government of an economic power has been tampering with its GDP, inflation, and employment figures to window-dress the domestic economy. As a matter of fact, this absurd way of thinking does not hold water because such large-scale economic data require rigorous statistical methods, involving input from countless independent statisticians and scholars.

All statistical reports must be meticulously reviewed by economists and analysts from around the world, making it virtually impossible to conceal any major frauds. Should investors fall for such conspiracy theories and make irrational decisions, e.g. hoarding commodities or abandoning the stock market altogether, the long-term growth of their investment portfolios could be compromised.

Furthermore, there are also conspiracy theorists who claim that the central bank of another economic power is harbouring a secret agenda to benefit a few at the expense of the majority by manipulating interest rates and the monetary policy. This rumour is nothing but ridiculous. Under strict supervision, the central bank’s operations are extremely transparent, with all its comprehensive reports and meeting minutes made public. Allegations of the so-called secret agenda are not only utterly groundless but simply do not square with the accountability mechanisms in place. If investors are misled into bypassing traditional investment channels or making rash decisions, national financial stability and growth could be jeopardized.

Despite the fact that allegations of insider trading and stock market manipulation are also common, security trading regulators in leading markets are generally dedicated to combating these irregularities. Given the immense scope and complexity of the stock market, it is extremely unlikely that a small number of individuals could control it systematically. While factors influencing market dynamics are many, including economic data, business performance, and geopolitical risks, investors misled by disinformation could lose their faith in the market or even withdraw from investment activities. They may, therefore, miss wealth-creation opportunities in the stock market, particularly those for long-term asset gains.

There is yet another group of conspiracy theorists known as the “gold bugs”. They claim that with the imminent collapse of the traditional fiat currencies (for instance, the US dollar) and the emergence of economic recession or hyperinflation, gold is the only safe-haven asset.

They also believe that central banks and national governments attempt to suppress gold prices through manipulation in order to prevent the general public from abandoning traditional currencies. Although gold is indeed an asset with intrinsic value, it is by no means immune to market fluctuations, nor is it likely to offer the kind of stable returns produced by diversified investments.

This group of conspiracy theorists obviously overlook the reality that gold prices are shaped by a basket of factors, ranging from supply and demand to investor sentiments and the macroeconomic environment. The view that governments suppress gold prices is not only baseless but also dismissive of the transparency of the gold market and the extent to which the market is regulated. Investors misled by this conspiracy theory may become exceedingly reliant on gold. Failing to diversify their investments will only increase their investment risks and limit their potential returns.

Setting the record straight to safeguard against losses  

So long as social media or other platforms keep being the fertile ground for churning out distorted information and the general public continue to have knee-jerk reactions to news, the global economy will remain susceptible to constant risks of deception. By taking advantage of potential panic, conspiracy theorists undermine ordinary people’s logical reasoning and analytical abilities, leaving them as sitting ducks for brainwashing and outrageous rumours. Hence, whenever we come across sensational articles attempting to manipulate readers’ emotions with expressions such as “hot off the press”, “breaking news”, “going viral”, or other similar clickbait headlines, we should be ultra-alert and beware of malicious disinformation.

As the saying goes, “Lies repeated a thousand times will become truth.” That is why critical thinking starts with us. Before forwarding a message, we should ensure the source is reliable, the content is reasonable or objective, and the views are based on facts or science. These basic criteria can help us to sort out signal from noise. Not only can investors benefit from this, but the impact of heavy losses incurred by disinformation on the world’s economy can also be mitigated.

【Note 1】: Cavazos, R., and CHEQ. 2019. “The Economic Cost of Bad Actors on the Internet: Fake News in 2019”.
【Note 2】: Arcuri, M.C., Gandolfi, G., and Russo, T. May-June 2023. “Does fake news impact stock returns? Evidence from US and EU stock markets”. Journal of Economics and Business vol.125-126.

Dr Maurice Tse and Mr Clive Ho

28 August 2024

In this day and age, when social media is all the rage and artificial intelligence (AI) along with digital transformation are advancing in leaps and bounds, the rampant production and dissemination of information can influence personal behaviour and investment decisions. The phenomenon may also potentially incite panic in society and the market, giving rise to a credibility crisis. In January 2024, the World Economic Forum declared misinformation and disinformation as the greatest short-term risks worldwide.

How can inaccurate information and deceiving information be so alarmingly destructive? The answer lies in the fact that, when deployed with conspiracy theories, such information can come across as fully credible, leaving the general public completely at its mercy. With the world being constantly flooded with information that is hard to verify, political polarization becoming increasingly prevalent, and the global economic downturn showing no sign of abating, rumours and conjectures abound. These range from conspiracy theories about currency wars to allegations that the US moon landing was faked.

The steep price of hocus-pocus

Time is of utmost importance in financial investment. Even within the infinitesimal span of a few milliseconds, a single news update or social media post can trigger price fluctuations in the market. In 2019, Roberto Cavazos, a professor at the University of Baltimore’s School of Business in the US, and the cybersecurity company CHEQ jointly published a research report (see 【Note 1】). The publication drew attention to the fact that every year, stock market losses resulting from fake news amount to US$39 billion. Investors’ decisions influenced by misinformation sustain losses of around US$17 billion on an annual basis (see Figure).

For companies targeted by disinformation attacks, their annual expenditure on reputation management reaches approximately US$9.54 billion. Their annual expenditure on addressing false information in the healthcare sector is around US$9 billion, with the greatest costs incurred in measures to combat fake news about the anti-vaccine campaign and climate change. Global losses induced by disinformation amount to a total of US$78.2 billion.

Financial losses for many in pump and dump schemes

It is widely known that political election campaigns are not immune to disinformation. Research shows that approximately US$300 million is spent annually on phoney political ads. During the 2020 US presidential election, at least US$200 million was spent on fake news. As also indicated by researchers, their estimates only illustrate the basic direct costs. The real underlying costs far exceed the estimated figures.

Of the journalists surveyed in a report released by the US Pew Research Centre in 2022, 26% of the respondents indicate that they have unknowingly reported news containing disinformation. In their opinion, identifying disinformation is more and more challenging, especially as the advancement of AI technology facilitates the spread of false information. According to a 2023 survey conducted by the insurance company Nationwide, 34% of American non-retiree investors aged between 18 and 54 have been influenced to make investments based on misleading financial information (e.g. pump and dump schemes) found on the internet or social media. Not only have investors suffered losses but the market’s credibility has also been undermined as a result.

As mentioned in the research study by Arcuri et al. published in the Journal of Economics and Business in 2023 (see 【Note 2】), some investors might be unable to agree on the true value of a company due to their failure to distinguish between real and fake news. Consequently, the target company’s stock price dances to the tune of disinformation. The study analyses fake news originating from overseas but released in America and Europe from 2007 to 2019. In terms of stock returns, the findings demonstrate that unfavourable fake news generates substantial short-term negative impacts while favourable or neutral news has minimal impacts.

Conspiracy theories bleeding into economics

What is even worse, under the echo-chamber effect of social media, all sorts of unverifiable conspiracy theories have gained wide currency and approval. One notable example is the allegation that the government of an economic power has been tampering with its GDP, inflation, and employment figures to window-dress the domestic economy. As a matter of fact, this absurd way of thinking does not hold water because such large-scale economic data require rigorous statistical methods, involving input from countless independent statisticians and scholars.

All statistical reports must be meticulously reviewed by economists and analysts from around the world, making it virtually impossible to conceal any major frauds. Should investors fall for such conspiracy theories and make irrational decisions, e.g. hoarding commodities or abandoning the stock market altogether, the long-term growth of their investment portfolios could be compromised.

Furthermore, there are also conspiracy theorists who claim that the central bank of another economic power is harbouring a secret agenda to benefit a few at the expense of the majority by manipulating interest rates and the monetary policy. This rumour is nothing but ridiculous. Under strict supervision, the central bank’s operations are extremely transparent, with all its comprehensive reports and meeting minutes made public. Allegations of the so-called secret agenda are not only utterly groundless but simply do not square with the accountability mechanisms in place. If investors are misled into bypassing traditional investment channels or making rash decisions, national financial stability and growth could be jeopardized.

Despite the fact that allegations of insider trading and stock market manipulation are also common, security trading regulators in leading markets are generally dedicated to combating these irregularities. Given the immense scope and complexity of the stock market, it is extremely unlikely that a small number of individuals could control it systematically. While factors influencing market dynamics are many, including economic data, business performance, and geopolitical risks, investors misled by disinformation could lose their faith in the market or even withdraw from investment activities. They may, therefore, miss wealth-creation opportunities in the stock market, particularly those for long-term asset gains.

There is yet another group of conspiracy theorists known as the “gold bugs”. They claim that with the imminent collapse of the traditional fiat currencies (for instance, the US dollar) and the emergence of economic recession or hyperinflation, gold is the only safe-haven asset.

They also believe that central banks and national governments attempt to suppress gold prices through manipulation in order to prevent the general public from abandoning traditional currencies. Although gold is indeed an asset with intrinsic value, it is by no means immune to market fluctuations, nor is it likely to offer the kind of stable returns produced by diversified investments.

This group of conspiracy theorists obviously overlook the reality that gold prices are shaped by a basket of factors, ranging from supply and demand to investor sentiments and the macroeconomic environment. The view that governments suppress gold prices is not only baseless but also dismissive of the transparency of the gold market and the extent to which the market is regulated. Investors misled by this conspiracy theory may become exceedingly reliant on gold. Failing to diversify their investments will only increase their investment risks and limit their potential returns.

Setting the record straight to safeguard against losses  

So long as social media or other platforms keep being the fertile ground for churning out distorted information and the general public continue to have knee-jerk reactions to news, the global economy will remain susceptible to constant risks of deception. By taking advantage of potential panic, conspiracy theorists undermine ordinary people’s logical reasoning and analytical abilities, leaving them as sitting ducks for brainwashing and outrageous rumours. Hence, whenever we come across sensational articles attempting to manipulate readers’ emotions with expressions such as “hot off the press”, “breaking news”, “going viral”, or other similar clickbait headlines, we should be ultra-alert and beware of malicious disinformation.

As the saying goes, “Lies repeated a thousand times will become truth.” That is why critical thinking starts with us. Before forwarding a message, we should ensure the source is reliable, the content is reasonable or objective, and the views are based on facts or science. These basic criteria can help us to sort out signal from noise. Not only can investors benefit from this, but the impact of heavy losses incurred by disinformation on the world’s economy can also be mitigated.

【Note 1】: Cavazos, R., and CHEQ. 2019. “The Economic Cost of Bad Actors on the Internet: Fake News in 2019”.
【Note 2】: Arcuri, M.C., Gandolfi, G., and Russo, T. May-June 2023. “Does fake news impact stock returns? Evidence from US and EU stock markets”. Journal of Economics and Business vol.125-126.

Seven Indicators Forecast Great Challenges for Hong Kong’s Economy

Dr Chi-pui Ho and Dr Cynthia Cao

21 August 2024

In my previous article in this column last month, I point out from the start that utilizing economic time series, clear diagrams and tables, coupled with relevant theories, is conducive to providing a full picture of local economic development (see 【Note】). In this article, I will analyse the overall performance in the following seven categories: logistics and transport, gross domestic product (GDP), prices, labour market, industrial sectors, demographic structure, and economic outlook indicators. Future challenges in each category will be presented, with data illustrated by charts.

Falling container throughput and surging land transport

With its strategic location, deep natural harbour, and well-established container transport facilities, Hong Kong has developed into one of the busiest ports in the world and a major entrepot in Asia. At the turn of the 21st century, the “front shop, back plant” model boosted transhipments from the Pearl River Delta Economic Zone through Hong Kong to overseas markets, spurring the growth of its container throughput. Since the 2010s, however, significant development of Mainland ports has reduced the need for transhipment of goods through Hong Kong to Mainland cities, thus gradually decreasing its sea freight throughput (see Figure D1).

In terms of air traffic, Hong Kong boasts wide-ranging geographical advantages. Coupled with an expansive air transport network and a premier international airport, these factors have enabled it to become a primary air freight hub in the region. Leveraging the “front shop, back plant” model of the neighbouring Pearl River Delta Economic Zone, the city’s air freight throughput has recorded an upward trend. That said, in recent years, facing competition from airports (particularly those in the Mainland), Hong Kong International Airport must enhance operational efficiency, optimize cargo facilities, and adopt state-of-the-art technologies, and strengthen connectivity in order to maintain its status as a dominant aviation hub.

As for passenger traffic, Hong Kong, being an international metropolis, relies heavily on air travel to connect with the rest of the world. The importance of this is reflected in the remarkable growth over the years. However, in the wake of the COVID-19 pandemic, air passenger volume has yet to return to pre-pandemic levels.

Surrounded by water on three sides, Hong Kong has a widespread maritime network that facilitates connections with nearby regions. This has historically expedited the increase in cross-border waterborne transport in the past, especially at the Hong Kong-Macau Ferry Terminal. Since the opening of the Hong Kong-Zhuhai-Macao Bridge in 2018, Hong Kong has registered a slowdown in cross-border sea passenger throughput, which has remained at low levels after the pandemic.

Land infrastructures such as the Shenzhen Bay Bridge, the Guangzhou-Shenzhen-Hong Kong Express Rail link, and the Hong Kong-Zhuhai-Macao Bridge have facilitated land links between Hong Kong and the Chinese Mainland. The number of cross-border passengers has continued to rise since the beginning of this century and has quickly rebounded after the coronavirus pandemic.

Stable economic growth and low inflation

Productivity, a robust labour force, and a business-friendly environment have sustained the long-term growth of GDP per capita For decades (see Figure E1A), placing Hong Kong among the cities with the highest living standards worldwide. Since 1997, Hong Kong’s GDP per capita has climbed by an average of around 2% each year. Similarly, private consumption as well as imports and exports have shown comparable growth trends.

Under the linked exchange rate system, the Hong Kong dollar is pegged to the greenback and has benefited from the prudent US monetary policy. Consequently, Hong Kong’s inflation rate has remained low and stable. Since 2010, the overall Consumer Price Index has expanded by an average of 0.2% on a monthly basis. Expenses on housing, food, transport, water, and electricity are the main contributors to the overall Consumer Price Index (see Figure F1A).

Since the 1980s, the focus of Hong Kong’s economic development has shifted from manufacturing to finance, logistics, and professional services, spelling the downward spiral of various traditional industries. The local labour market now demands a more educated workforce with new skills.

Thanks to economic stability in the 2010s, unemployment and underemployment remained at 3% to 4% and 1% to 2% respectively while population ageing led to a decline in labour force participation rate (see Figure G1B). The rise in wages has been lower than the economic growth in Hong Kong. From 1999 to the present, the real wage indices and the real payroll indices have risen by only around 30% whereas the real GDP has soared by around 100%.

In light of the above trends, Hong Kong needs to find solutions to the labour shortage caused by an ageing population and the income inequality resulting from stagnant wage growth. A series of labour welfare-related issues will also pose immense challenges to the labour market.

Plummeting share of the tourism industry

The four pillar industries of Hong Kong are financial services, tourism, trading and logistics, as well as professional and producer services. Professional and producer services encompasses a wide range of industries, including law, accounting, information technology, advertising, engineering, architectural design, and surveying services.

Since the 2010s, financial services has played a steadily important role in terms of contributions to GDP. In contrast, the significance of trade and logistics has experienced a downward trend. Severely disrupted by the coronavirus pandemic, tourism’s share of GDP has plunged from 5% pre-pandemic to less than 1% in recent years (see Figure H3A).

As for other sectors, the cultural and creative industries have shown exciting development, maintaining a share of GDP at around 5%. Medical services, education services, innovation and technology, testing and certification services, environmental industries, air transport, as well as sports and related activities have each seen their share of GDP hovering below 5%.

The local population continues to rise steadily and has now reached over 7.5 million. As an international financial centre, Hong Kong has been attracting talent from all over the world to work and live here.

Hong Kong prides itself on being one of the global cities with the highest average life expectancy. With ever-improving healthcare services and standards of living, the average life expectancy of Hongkongers is 85 years. Owing to a declining birth rate and higher life expectancy, the local population has been speedily ageing (see Figure I1). On the other hand, Hong Kong’s overall education level has been progressively rising.

Regarding marriage and divorce rates, with changes in social norms, expanded educational and employment opportunities for women, and a rise in the age at first marriage, marriage rates have shown a declining trend since the 1970s. In comparison, divorce rates have accelerated, indicating a change in attitudes toward and acceptance of divorce in society. Meanwhile, as a result of the upward cost of living, work pressure, changing family expectations, etc., Hong Kong’s birth rate has markedly declined from 3.5 children per woman in the 1970s to 0.75 children per woman in 2023, far below the replacement level.

Business indices signal caution

When it comes to future economic growth, large institutions regularly release an array of indicators for different sectors to reference, including the following five that track Hong Kong’s economic development.

The “Report on Quarterly Business Tendency Survey”, conducted by the Hong Kong SAR Government’s Census and Statistics Department, presents the business confidence and expectations of companies in various sectors. Positive signs indicate overall bright prospects while negative signs indicate overall bleak prospects.

The Census and Statistics Department also publishes the “Report on Monthly Survey on the Business Situation of Small and Medium-sized Enterprises”, which presents diffusion indices on business receipts of these enterprises by comparing their expectations of their business situation in the coming month with the current situation. A reading above 50 indicates that the business condition is generally favourable while a reading below 50 reflects the opposite.

The “Standard Chartered Hong Kong SME Leading Business Index” is undertaken independently by the Hong Kong Productivity Council. As a composite index to gauge the performance of SMEs in Hong Kong, its calculations are based on different economic indicators with a weighted average. These indicators encompass retail sales value, industrial production index, and export volume.

An upward trend in the composite index indicates improving economic performance of SMEs. In contrast, a falling trend suggests that their economic performance is under pressure, pointing to an economic downturn or a business environment facing unfavourable factors.

The “Hong Kong Trade Development Council’s Export Index” assesses the sentiments and expectations among Hong Kong exporters. When the index is higher than 50, it reflects an overall optimistic outlook on exports. Conversely, when it is lower than 50, it indicates an overall pessimistic outlook.

The “S&P Global Purchasing Managers’ Index of Hong Kong”, based on surveys of purchasing managers across various industries, reflects economic performance through new orders, employment, and output. When the index is higher than 50, it indicates expanding economic activity. When it is lower than 50, it indicates economic contraction.

All in all, in recent years, companies across various industries in Hong Kong have been cautious about the business environment and export outlook. This highlights the multiple geopolitical challenges ahead, the changing consumption patterns of Mainland tourists, and the mounting competition from neighbouring regions.

【Note】: Ho, Chi-pui, “Analysing Hong Kong’s Property Market with Data”, 17 July 2024; “Analysing Hong Kong’s Financial and Tourism Markets with Data”, 18 July 2024; Hong Kong Economic Journal

Seven Indicators Forecast Great Challenges for Hong Kong’s Economy

Dr Chi-pui Ho and Dr Cynthia Cao

21 August 2024

In my previous article in this column last month, I point out from the start that utilizing economic time series, clear diagrams and tables, coupled with relevant theories, is conducive to providing a full picture of local economic development (see 【Note】). In this article, I will analyse the overall performance in the following seven categories: logistics and transport, gross domestic product (GDP), prices, labour market, industrial sectors, demographic structure, and economic outlook indicators. Future challenges in each category will be presented, with data illustrated by charts.

Falling container throughput and surging land transport

With its strategic location, deep natural harbour, and well-established container transport facilities, Hong Kong has developed into one of the busiest ports in the world and a major entrepot in Asia. At the turn of the 21st century, the “front shop, back plant” model boosted transhipments from the Pearl River Delta Economic Zone through Hong Kong to overseas markets, spurring the growth of its container throughput. Since the 2010s, however, significant development of Mainland ports has reduced the need for transhipment of goods through Hong Kong to Mainland cities, thus gradually decreasing its sea freight throughput (see Figure D1).

In terms of air traffic, Hong Kong boasts wide-ranging geographical advantages. Coupled with an expansive air transport network and a premier international airport, these factors have enabled it to become a primary air freight hub in the region. Leveraging the “front shop, back plant” model of the neighbouring Pearl River Delta Economic Zone, the city’s air freight throughput has recorded an upward trend. That said, in recent years, facing competition from airports (particularly those in the Mainland), Hong Kong International Airport must enhance operational efficiency, optimize cargo facilities, and adopt state-of-the-art technologies, and strengthen connectivity in order to maintain its status as a dominant aviation hub.

As for passenger traffic, Hong Kong, being an international metropolis, relies heavily on air travel to connect with the rest of the world. The importance of this is reflected in the remarkable growth over the years. However, in the wake of the COVID-19 pandemic, air passenger volume has yet to return to pre-pandemic levels.

Surrounded by water on three sides, Hong Kong has a widespread maritime network that facilitates connections with nearby regions. This has historically expedited the increase in cross-border waterborne transport in the past, especially at the Hong Kong-Macau Ferry Terminal. Since the opening of the Hong Kong-Zhuhai-Macao Bridge in 2018, Hong Kong has registered a slowdown in cross-border sea passenger throughput, which has remained at low levels after the pandemic.

Land infrastructures such as the Shenzhen Bay Bridge, the Guangzhou-Shenzhen-Hong Kong Express Rail link, and the Hong Kong-Zhuhai-Macao Bridge have facilitated land links between Hong Kong and the Chinese Mainland. The number of cross-border passengers has continued to rise since the beginning of this century and has quickly rebounded after the coronavirus pandemic.

Stable economic growth and low inflation

Productivity, a robust labour force, and a business-friendly environment have sustained the long-term growth of GDP per capita For decades (see Figure E1A), placing Hong Kong among the cities with the highest living standards worldwide. Since 1997, Hong Kong’s GDP per capita has climbed by an average of around 2% each year. Similarly, private consumption as well as imports and exports have shown comparable growth trends.

Under the linked exchange rate system, the Hong Kong dollar is pegged to the greenback and has benefited from the prudent US monetary policy. Consequently, Hong Kong’s inflation rate has remained low and stable. Since 2010, the overall Consumer Price Index has expanded by an average of 0.2% on a monthly basis. Expenses on housing, food, transport, water, and electricity are the main contributors to the overall Consumer Price Index (see Figure F1A).

Since the 1980s, the focus of Hong Kong’s economic development has shifted from manufacturing to finance, logistics, and professional services, spelling the downward spiral of various traditional industries. The local labour market now demands a more educated workforce with new skills.

Thanks to economic stability in the 2010s, unemployment and underemployment remained at 3% to 4% and 1% to 2% respectively while population ageing led to a decline in labour force participation rate (see Figure G1B). The rise in wages has been lower than the economic growth in Hong Kong. From 1999 to the present, the real wage indices and the real payroll indices have risen by only around 30% whereas the real GDP has soared by around 100%.

In light of the above trends, Hong Kong needs to find solutions to the labour shortage caused by an ageing population and the income inequality resulting from stagnant wage growth. A series of labour welfare-related issues will also pose immense challenges to the labour market.

Plummeting share of the tourism industry

The four pillar industries of Hong Kong are financial services, tourism, trading and logistics, as well as professional and producer services. Professional and producer services encompasses a wide range of industries, including law, accounting, information technology, advertising, engineering, architectural design, and surveying services.

Since the 2010s, financial services has played a steadily important role in terms of contributions to GDP. In contrast, the significance of trade and logistics has experienced a downward trend. Severely disrupted by the coronavirus pandemic, tourism’s share of GDP has plunged from 5% pre-pandemic to less than 1% in recent years (see Figure H3A).

As for other sectors, the cultural and creative industries have shown exciting development, maintaining a share of GDP at around 5%. Medical services, education services, innovation and technology, testing and certification services, environmental industries, air transport, as well as sports and related activities have each seen their share of GDP hovering below 5%.

The local population continues to rise steadily and has now reached over 7.5 million. As an international financial centre, Hong Kong has been attracting talent from all over the world to work and live here.

Hong Kong prides itself on being one of the global cities with the highest average life expectancy. With ever-improving healthcare services and standards of living, the average life expectancy of Hongkongers is 85 years. Owing to a declining birth rate and higher life expectancy, the local population has been speedily ageing (see Figure I1). On the other hand, Hong Kong’s overall education level has been progressively rising.

Regarding marriage and divorce rates, with changes in social norms, expanded educational and employment opportunities for women, and a rise in the age at first marriage, marriage rates have shown a declining trend since the 1970s. In comparison, divorce rates have accelerated, indicating a change in attitudes toward and acceptance of divorce in society. Meanwhile, as a result of the upward cost of living, work pressure, changing family expectations, etc., Hong Kong’s birth rate has markedly declined from 3.5 children per woman in the 1970s to 0.75 children per woman in 2023, far below the replacement level.

Business indices signal caution

When it comes to future economic growth, large institutions regularly release an array of indicators for different sectors to reference, including the following five that track Hong Kong’s economic development.

The “Report on Quarterly Business Tendency Survey”, conducted by the Hong Kong SAR Government’s Census and Statistics Department, presents the business confidence and expectations of companies in various sectors. Positive signs indicate overall bright prospects while negative signs indicate overall bleak prospects.

The Census and Statistics Department also publishes the “Report on Monthly Survey on the Business Situation of Small and Medium-sized Enterprises”, which presents diffusion indices on business receipts of these enterprises by comparing their expectations of their business situation in the coming month with the current situation. A reading above 50 indicates that the business condition is generally favourable while a reading below 50 reflects the opposite.

The “Standard Chartered Hong Kong SME Leading Business Index” is undertaken independently by the Hong Kong Productivity Council. As a composite index to gauge the performance of SMEs in Hong Kong, its calculations are based on different economic indicators with a weighted average. These indicators encompass retail sales value, industrial production index, and export volume.

An upward trend in the composite index indicates improving economic performance of SMEs. In contrast, a falling trend suggests that their economic performance is under pressure, pointing to an economic downturn or a business environment facing unfavourable factors.

The “Hong Kong Trade Development Council’s Export Index” assesses the sentiments and expectations among Hong Kong exporters. When the index is higher than 50, it reflects an overall optimistic outlook on exports. Conversely, when it is lower than 50, it indicates an overall pessimistic outlook.

The “S&P Global Purchasing Managers’ Index of Hong Kong”, based on surveys of purchasing managers across various industries, reflects economic performance through new orders, employment, and output. When the index is higher than 50, it indicates expanding economic activity. When it is lower than 50, it indicates economic contraction.

All in all, in recent years, companies across various industries in Hong Kong have been cautious about the business environment and export outlook. This highlights the multiple geopolitical challenges ahead, the changing consumption patterns of Mainland tourists, and the mounting competition from neighbouring regions.

【Note】: Ho, Chi-pui, “Analysing Hong Kong’s Property Market with Data”, 17 July 2024; “Analysing Hong Kong’s Financial and Tourism Markets with Data”, 18 July 2024; Hong Kong Economic Journal

教育回報倒掛 上大學還值得嗎

過去一個月，內地高考、香港中學文憑考試相繼放榜，時至今日，塵埃逐漸落定。考生何去何從，不僅影響眾多家庭的生活節奏，亦是社會經濟狀況的晴雨表。今年的一個鮮明特點就是，短期市場回報率成為考生擇校的主導因素。

社會上對此現象反應不一，貶之者認為急功近利，褒之者則謂識時務者為俊傑。或貶或褒，毋庸置疑的是，中國社會面臨一個嚴峻的社會現象：教育上的高投入並沒有帶來高回報，高學歷者反而就業難。這種教育投資與回報率不相稱的新現象引出了一個問題：上大學還值得嗎？

擇校不求陽春白雪

本地「大學聯合招生辦法」於上周三公布遴選結果。不出意外，醫科、商科、金融這類實用課程仍是優秀考生的不二之選。中文大學（中大）稱，全港前百名中學文憑考試尖子之中，近半選讀該校醫科。

今屆10名公開試狀元中，8人被香港大學（港大）和中大的醫學院錄取，另外兩人分別入讀港大和科技大學的環球商業管理課程。

內地的情況則有所不同，由於經濟大勢仍處於調整期，加上國家的調控和輿論引導，財經金融類課程的受歡迎程度急劇下降，內地名校的商學院已不再是各地高考狀元的首選。尖子生的去向大致兵分兩路，一是傳統的數理化基礎學科，二是電腦、人工智能和數據科學等當時得令的科技課程。

對於普通學生而言，修讀出路好的課程比入讀名校的吸引力更大。以深圳為例，不僅南方科技大學、哈爾濱工業大學深圳分校這類科技強校受到高分考生的青睞，連深圳技術大學、深圳職業技術大學等以前名不見經傳的院校，其電腦、資訊工程、自動化課程也成為大熱門，收生要求更高於一些傳統名校。在江蘇、浙江等經濟發達的省份，高分學生選擇就讀職業學校的例子比比皆是。內地一家主流招聘網站最新發布的調查報告表明，在受訪的大學生中，超過一半認為回到職業學校學習技能，可以拓闊畢業後求職之路。

投資與產出失調

考生放棄興趣與理想，淡化長期的職業生涯規劃，而選擇短期容易就業的實用課程，固然折射出當下經濟的不確定性，也反映出中國教育產業投入高卻出路窄的問題。港大本月初公布的畢業生就業調查報告顯示，撇除暫緩就業或不願就業的學生，2023年學士學位畢業生就業率高達98.8％，平均月薪接近3.2萬元，較前一年上升3.4％。同期，其他各大學也表現良好，畢業生就業率均逾70％，難怪不少人把港校列為性價比最高的梯隊。

相比之下，內地研究型大學畢業生的就業形勢頗為嚴峻。不僅一般高等院校學生找工作困難，即使最頂尖的大學畢業生也不見得容易；更不尋常的是，就業難度與教育程度成反比。根據智聯招聘今年3、4月的問卷調研，內地「雙一流」（世界一流大學和一流學科建設）大學畢業生的就業率最高，但也只有57％。碩士、博士畢業生的就業率僅44.4％，本科生雖略高，亦不過45.4％，大專生的就業率反而高達56.6％。

這種學歷愈高就業愈難的現象，主因是中國教育產業在過去20年擴張過度。一些短、平、快的實用課程勉強提升到研究院水平，一旦就業需求下降，普通院校的碩士、博士畢業生便會被勞動力市場邊緣化。在家庭層面，則是投入產出的極度失當。在中國，孩子學歷每上一個台階，父母都要作出巨大犧牲。當前出現教育回報倒掛的現象，許多家庭在教育投資一環便要重新考量。

人力資本價值難定

教育回報率的估算是勞動經濟學的一個經典問題。在美國，經濟學家幾十年的估算表明，在第二次世界大戰後一段很長時間，每人的學校教育年期每增加1 年，其收入平均增長7％至8％，亦即相當於美國股票市場的平均年收益率。因此，一些專家把美國二戰後經濟高速發展的黃金30年歸功於金融資本和人力資本的雙高回報。

至於中國，由於缺乏具有全民代表性的樣本，對教育回報率的估算莫衷一是，有高達30%至40％，有低至2%至4％。這種差異除了是數據偏差外，另外有兩個主要原因。一是地域之間差異大，從東部沿海城市的樣本與西部內陸地區的樣本，所得結果一定是迥然相異。二是經濟結構變化極快，10年前的高教育回報未必能在10年後維持下去。

儘管中國家庭仍然重視教育，未來人力資本的市場價值卻充滿隱憂。由改革開放而引發的產業分工，給全國帶來了巨大的人口紅利。水漲船高，人口紅利帶動教育紅利的增長。隨着人口紅利逐漸消散，教育紅利也就沒那麼顯著了。另一方面，中國經濟發展不均加劇，社會流動性減弱，凡此種種都會抑制教育回報。未來10年，對教育衝擊最大的因素，相信是人工智能技術的廣泛使用，相關變革將給教育回報帶來極大的不確定性。

面對大學生就業困難，一些人認為中國的高等教育應該大量扶植以就業為導向的職業大學。目前中國高技能人才約5000多萬人，佔技能人才比例大概28％。從市場需求來看，通過職業大學培養高技能人才確實有相當大的空間；以普通家庭而言，入讀職業大學也不失為降本增效的好方法。但是，把職業大學當作高等教育的落腳點未免有失偏頗。

大學適度逆市操作

社會對人才的需求無疑十分多元化，對複合型人才的需求遠遠大於單一技能型的人才，前者只有在綜合性大學才能夠較好地培養出來。中國如果要走上知識型經濟的道路，必須依靠大批有學識、富創意的高質素人才，而不是單純的高技能人才。再者，日後技術發展對單一性的技能型人才可能出現很強的替代效應，對綜合性人才則有互補關係。

歸根究柢，大學不應完全跟着市場走，而理應前瞻性地發展，甚至適度地採取與市場逆向的操作。正如剛在上周辭世的諾貝爾物理學獎得主李政道先生曾在北京一個學術會議上發表的演講，標題正是：「沒有今日的基礎科學，就沒有明日的科技應用」。

因此，研究型大學可以對基礎學科和某些相對冷門的課程提供額外資助，吸引傑出學生就讀。香港的高等學府不受內地勞動力市場直接影響，在這方面別具優勢。這也是港校擴大影響、回饋社會的策略性方式。

吳延暉教授
港大經管學院經濟學、管理及商業策略副教授

（本文同時於二零二四年八月十四日載於《信報》「龍虎山下」專欄）

Dr Maurice Tse and Mr Clive Ho

28 August 2024

In this day and age, when social media is all the rage and artificial intelligence (AI) along with digital transformation are advancing in leaps and bounds, the rampant production and dissemination of information can influence personal behaviour and investment decisions. The phenomenon may also potentially incite panic in society and the market, giving rise to a credibility crisis. In January 2024, the World Economic Forum declared misinformation and disinformation as the greatest short-term risks worldwide.

How can inaccurate information and deceiving information be so alarmingly destructive? The answer lies in the fact that, when deployed with conspiracy theories, such information can come across as fully credible, leaving the general public completely at its mercy. With the world being constantly flooded with information that is hard to verify, political polarization becoming increasingly prevalent, and the global economic downturn showing no sign of abating, rumours and conjectures abound. These range from conspiracy theories about currency wars to allegations that the US moon landing was faked.

The steep price of hocus-pocus

Time is of utmost importance in financial investment. Even within the infinitesimal span of a few milliseconds, a single news update or social media post can trigger price fluctuations in the market. In 2019, Roberto Cavazos, a professor at the University of Baltimore’s School of Business in the US, and the cybersecurity company CHEQ jointly published a research report (see 【Note 1】). The publication drew attention to the fact that every year, stock market losses resulting from fake news amount to US$39 billion. Investors’ decisions influenced by misinformation sustain losses of around US$17 billion on an annual basis (see Figure).

For companies targeted by disinformation attacks, their annual expenditure on reputation management reaches approximately US$9.54 billion. Their annual expenditure on addressing false information in the healthcare sector is around US$9 billion, with the greatest costs incurred in measures to combat fake news about the anti-vaccine campaign and climate change. Global losses induced by disinformation amount to a total of US$78.2 billion.

Financial losses for many in pump and dump schemes

It is widely known that political election campaigns are not immune to disinformation. Research shows that approximately US$300 million is spent annually on phoney political ads. During the 2020 US presidential election, at least US$200 million was spent on fake news. As also indicated by researchers, their estimates only illustrate the basic direct costs. The real underlying costs far exceed the estimated figures.

Of the journalists surveyed in a report released by the US Pew Research Centre in 2022, 26% of the respondents indicate that they have unknowingly reported news containing disinformation. In their opinion, identifying disinformation is more and more challenging, especially as the advancement of AI technology facilitates the spread of false information. According to a 2023 survey conducted by the insurance company Nationwide, 34% of American non-retiree investors aged between 18 and 54 have been influenced to make investments based on misleading financial information (e.g. pump and dump schemes) found on the internet or social media. Not only have investors suffered losses but the market’s credibility has also been undermined as a result.

As mentioned in the research study by Arcuri et al. published in the Journal of Economics and Business in 2023 (see 【Note 2】), some investors might be unable to agree on the true value of a company due to their failure to distinguish between real and fake news. Consequently, the target company’s stock price dances to the tune of disinformation. The study analyses fake news originating from overseas but released in America and Europe from 2007 to 2019. In terms of stock returns, the findings demonstrate that unfavourable fake news generates substantial short-term negative impacts while favourable or neutral news has minimal impacts.

Conspiracy theories bleeding into economics

What is even worse, under the echo-chamber effect of social media, all sorts of unverifiable conspiracy theories have gained wide currency and approval. One notable example is the allegation that the government of an economic power has been tampering with its GDP, inflation, and employment figures to window-dress the domestic economy. As a matter of fact, this absurd way of thinking does not hold water because such large-scale economic data require rigorous statistical methods, involving input from countless independent statisticians and scholars.

All statistical reports must be meticulously reviewed by economists and analysts from around the world, making it virtually impossible to conceal any major frauds. Should investors fall for such conspiracy theories and make irrational decisions, e.g. hoarding commodities or abandoning the stock market altogether, the long-term growth of their investment portfolios could be compromised.

Furthermore, there are also conspiracy theorists who claim that the central bank of another economic power is harbouring a secret agenda to benefit a few at the expense of the majority by manipulating interest rates and the monetary policy. This rumour is nothing but ridiculous. Under strict supervision, the central bank’s operations are extremely transparent, with all its comprehensive reports and meeting minutes made public. Allegations of the so-called secret agenda are not only utterly groundless but simply do not square with the accountability mechanisms in place. If investors are misled into bypassing traditional investment channels or making rash decisions, national financial stability and growth could be jeopardized.

Despite the fact that allegations of insider trading and stock market manipulation are also common, security trading regulators in leading markets are generally dedicated to combating these irregularities. Given the immense scope and complexity of the stock market, it is extremely unlikely that a small number of individuals could control it systematically. While factors influencing market dynamics are many, including economic data, business performance, and geopolitical risks, investors misled by disinformation could lose their faith in the market or even withdraw from investment activities. They may, therefore, miss wealth-creation opportunities in the stock market, particularly those for long-term asset gains.

There is yet another group of conspiracy theorists known as the “gold bugs”. They claim that with the imminent collapse of the traditional fiat currencies (for instance, the US dollar) and the emergence of economic recession or hyperinflation, gold is the only safe-haven asset.

They also believe that central banks and national governments attempt to suppress gold prices through manipulation in order to prevent the general public from abandoning traditional currencies. Although gold is indeed an asset with intrinsic value, it is by no means immune to market fluctuations, nor is it likely to offer the kind of stable returns produced by diversified investments.

This group of conspiracy theorists obviously overlook the reality that gold prices are shaped by a basket of factors, ranging from supply and demand to investor sentiments and the macroeconomic environment. The view that governments suppress gold prices is not only baseless but also dismissive of the transparency of the gold market and the extent to which the market is regulated. Investors misled by this conspiracy theory may become exceedingly reliant on gold. Failing to diversify their investments will only increase their investment risks and limit their potential returns.

Setting the record straight to safeguard against losses  

So long as social media or other platforms keep being the fertile ground for churning out distorted information and the general public continue to have knee-jerk reactions to news, the global economy will remain susceptible to constant risks of deception. By taking advantage of potential panic, conspiracy theorists undermine ordinary people’s logical reasoning and analytical abilities, leaving them as sitting ducks for brainwashing and outrageous rumours. Hence, whenever we come across sensational articles attempting to manipulate readers’ emotions with expressions such as “hot off the press”, “breaking news”, “going viral”, or other similar clickbait headlines, we should be ultra-alert and beware of malicious disinformation.

As the saying goes, “Lies repeated a thousand times will become truth.” That is why critical thinking starts with us. Before forwarding a message, we should ensure the source is reliable, the content is reasonable or objective, and the views are based on facts or science. These basic criteria can help us to sort out signal from noise. Not only can investors benefit from this, but the impact of heavy losses incurred by disinformation on the world’s economy can also be mitigated.

【Note 1】: Cavazos, R., and CHEQ. 2019. “The Economic Cost of Bad Actors on the Internet: Fake News in 2019”.
【Note 2】: Arcuri, M.C., Gandolfi, G., and Russo, T. May-June 2023. “Does fake news impact stock returns? Evidence from US and EU stock markets”. Journal of Economics and Business vol.125-126.

Prof. Yanhui WU
Professor in Economics
Professor in Management and Strategy