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Immigration and the empty nest

SCMP February 25

Now that the re-election farce is behind him, there are signs that Tung Chee-hwa and his government are finally facing up to some fundamental issues from which they had shied away due to inertia and timidity. The study of the roots of Hongkong's fiscal deficits has at last come to the conclusion - which has been obvious for at least three years -- that the problem is more structural than cyclical. The government is also looking at though it will bite the bullet and make a decision on what kinds of new or improved taxes it intends to help remedy the problem. Finally, Mr Tung himself has pointed to the importance of an issue often mentioned in this column: population policy.

The 150 a day issue of one way permits has its roots deep in Sino-British relations and has absolutely no relevance to today's One Country Two Systems concept, or to Hongkong's economic needs. It is imperative that Hongkong regain control of both the numbers and identity of those arriving from the mainland. The only mainlanders who could reasonably object to such a transfer of responsibility are the corrupt officials who make money out of the permits.

For Hongkong, control of the permits is the best possible way of attracting needed skills from the mainland, and developing links with mainland regions which lack traditional family links to Hongkong. Immigration policy should be as much an economic tool here as it is in Canada and elsewhere. At present, most mainland immigrants have low skills and can only be absorbed into this labour force by paying wages which depress unskilled labour rates and thus widen the already horrendous income differentials which exist here. They are also a factor in the increase in longer term unemployment.

The issue of foreign domestic helpers also needs to be addressed. The brutal fact is that they are allowed in not because they bring variety and a touch of internationalism to Hongkong's ethnic mix. They are welcome because they provide a huge income subsidy to most of the rest of the population, particularly the middle class which employs them. Almost one household in eight now has a full time, live-in maid - which is probably a world record for any economy outside the oil enclaves of the Gulf. It is not necessarily a statistic of which Hongkong should be proud - though there is no doubt that the relationship is profitable for employees as well who generally have higher wages and meet less exploitation here than other Asian destinations.

The helpers not only provide labour at rates approximately one third the median wage. They also provide the only source of cheap English-speaking labour for shops, restaurants, media concerns etc catering primarily to non-Chinese. They do all this without making any demands on government educational and welfare services, and only a slight one on health. However, valuable though they are they not a long term alternative to immigration - unless they are to be encouraged to marry and have children here which is unlikely to be the case for a territory with a long history of legal and overt discrimination against non Chinese.

Immigration is probably more needed than the government itself believes. A look at the 2001 Census, and at the latest Population Projections, reveals some worrying statistics and debatable assumptions. Firstly, the aging process. The median age has risen from 31 to 36 in just ten years and will hit 40 by the end of this decade. This is a quite extraordinary rate of aging and would have been higher but for the fact that most one way permit entrants are well under the median age, as are most of the foreign domestic helpers.

The largest single age male cohort is the 40-44 group. There is a small up-blip in the 15-19 group but otherwise each age cohort is smaller than its predecessor. Those in the under five group total just 276,000 compared with 450,000 in the 15-19 group. This latest collapse in the fertility rate may prove temporary but has alarming implications. There are now more people over 75 in Hongkong than under 5. Only Japan can beat that!

The situation is even worse if one looks at some of the details. Although there is here a slight preference for male children there are in fact 22% more girls than boys in the 25-34 bracket, the range which accounts for most marriages. Most of the 110,000 gap comprises female domestic helpers who probably will not get pregnant. Given this data it seems unlikely that there is going to be sharp pick up in the birth rate any time soon. The economic consequences have not yet been felt.

Indeed, in addition to the boost to prosperity provided by the foreign maids, Hongkong has been enjoying a period of very low dependency rates. The number of young dependents has fallen while the number of old ones has yet to escalate. This trend will continue to the end of this decade with the overall dependency ratio, now around 380 per thousand will fall to 340 then sharply reverse, rising to 561 by 2029, according to official projections which are already optimistic as they assume a sharp recovery in the birth rate. The implications of these in terms of demand for housing, land prices, amount of disposable income and disposition of that income are immense.

These numbers again put into perspective the deliberate phony figures concocted by the government to stir up popular sentiment against the Court of Final Appeal's ruling on entry of mainland born children of Hongkong permanent residents. The number of potential arrivals was absurd, bringing the Census and Statistics department into disrepute. But even if the potential numbers of mainland children were accurate, the suggestion that they would swamp the schools was known then to be ridiculous given the collapse in the numbers of locally born children. There are now only 671,000 children under ten compared with 881,000 in the 10-19 group.

These figures ought to have big implications for future budgets and the structure of the education system as well as spark proper discussion of Hongkong's demographic situation. They may not do if the government believes its own population projections. I may be wrong, but Mr Tung has given the impression that we need to bring down the rate of population growth to take account of limited space etc. Perhaps he has been looking at the government's own Population Projections, 2000-2029, which suggest that the population will grow at around 1% a year to reach 9.05 million by 2029.

I hesitate to criticise any effort to forecast population growth. Fertility rates are notoriously fickle and unpredictable almost everywhere. Hongkong's population is also heavily influenced by migration and labour inflows and outflows which are determined by various economic and political factors. It also now has a peculiar category of so-called mobile residents. These are permanent residents who live here only part of the time - more than one but less than three months out of six. There are currently 200,000 in this new category but it is expected to rise rapidly as more people work on the mainland but keep a residence here.

However, the growth figures could prove far too high. Broadly, the migration assumptions are for little change. The projection assumes the intake from the mainland will remain static, the net intake of domestic helpers and foreign workers will fall sharply but overall net migration will be within the 50-65,000 range. So no assumption surprises there, which is reasonable given that policy on mainlanders will be the main determinant. Migration already accounts for 80% of net increase.

The big surprise is in the natural projections. If current birth rates continued, the population, excluding migration, would begin to fall. But the government is forecasting that the fertility rate will rise from a current 950 per 1,000 women back up to 1,600 by 2029. This is a huge leap. Interestingly, back in 1997 the government forecast a rise in fertility to 1,290 by 2001. In fact it continued to fall. The reasons put forward for such a turn-around are not very convincing. The recession may have been one factor in the latest decline but hardly accounts for the long term downward trend. (Domestic helpers were excluded from numbers of women of child-bearing age).

In other advanced countries, such as Denmark there has been some recovery in birth rates from their low points. Even if the Hongkong rate recovered to 1600 that would still not only be below the replacement rate but below the current level for countries such as the UK and Australia. But it is a very bold prediction which, of wrong, could lead to major policy errors.

Stabilising population may be an appropriate long term goal for Hongkong as it is for China generally. But unless the process is more gradual than the collapse in birth rates implies, the social and economic costs will be very high. The government would do better to base its population projections on current birth rate realities. Otherwise it is going to be planning for a lot of needs which never eventuate or curtailing immigration, thus leaving Hongkong like Japan, with scant way of retaining any youthful vigour.

Ends