Today, the “golden rules” of economic governance that had been held as sacrosanct in the past, such as “laissez-faire,” “positive noninterventionism” and the even better known “small government, big market” are no longer espoused by the Hong Kong Special Administrative Region government. 

Even Western countries such as the United States, the United Kingdom and some European countries have increasingly betrayed the principle of the “free market”, which they had long advocated, and have implemented various unorthodox policies and measures such as protectionism, investment restrictions, industrial subsidies, import and export controls, and unilateral sanctions to nurture or protect new or strategic industries. Increasing government intervention in economic affairs has become a worldwide phenomenon.

Today, the HKSAR government often claims it is a “proactive” government and no longer under the spell of “small government, large market”. However, it has still not systematically and cogently elaborated on what a “proactive” government entails, leaving many people unsure about Hong Kong’s development strategy. However, what is certain is that Hong Kong will never take up the “state capitalism” that more and more developing countries are engaging in, nor the “welfare state” that prevails in Scandinavian countries.

The reason is that the government will not run many public enterprises or provide generous and comprehensive social welfare and services to all residents. Even if the government wants to change its economic role substantially, it will face many insurmountable constraints.

First, the central government’s “one country, two systems” policy intends to preserve Hong Kong’s longstanding capitalism, where the private sector dominates, and the government’s economic role is limited. The low-tax regime and the fiscal policy of “living within our means” stipulated in the Basic Law constrict the government’s economic functions.

Second, for a long time, whether it was the British Hong Kong government or the HKSAR government, the educational background, professional expertise, job experience and even the mentality of officials were deeply related to the essential governance functions of administration, management, market regulation, maintenance of law and order, construction of basic facilities, land supply, and protection of private property rights. Political leaders and officials must quickly gain the knowledge and experience to proactively promote the economic planning, development, and support of new industries if the government’s economic role is to be transformed. Admittedly, in the four critical areas of public housing, social welfare, public healthcare and public education, the situation in Hong Kong is indeed a bit “socialist”. However, it is still a far cry from the generous Western “welfare states”.

Third, Hong Kong has already created a mature capitalist economic system over the past one and a half centuries. This system’s high degree of openness, fairness, flexibility and convenience has made Hong Kong a hot spot for investment, attracting money from all corners of the Earth. Excessive government involvement in economic activities will, on the contrary, excessively distort the operation of the market and breed rent-seeking behaviors, which are not necessarily beneficial to the city’s international image and economic development.

Finally, in the coming days, the global economy, including China’s, will suffer from anti-China global supply chain restructuring, protectionism, trade wars, investment controls, technology wars, weak consumption, underinvestment, investment control, inflation or deflation, the widespread repercussions of the Russia-Ukraine conflict, and the heavy indebtedness of many countries, as well as the “gray rhinos” and “black swans” lurking in the shadows.

To practice “creative intervention”, the HKSAR government has a long way to go and must constantly improve itself and take decisive action. The government must train and recruit more talent locally and from abroad to facilitate the performance of its new economic functions. It must also foster a cooperative partnership with the commercial, manufacturing, educational and social sectors to generate more resources, ideas, and talent. And it must forge an even closer relationship with the mainland to pursue joint projects, particularly in the GBA

As a highly open economy, Hong Kong’s economic future is cloudy in the short- to medium-run, and the government’s financial situation will be tricky. The welfare expenditures of the government will rise because of a deterioration of people’s livelihoods, eroding its financial ability to intervene in economic affairs.

However, an increasing deterioration in the domestic and international situations and the needs of Hong Kong’s economic development require the government to play a more proactive role in the city’s economic growth and industrial upgrading because the self-regulation and operation of the market alone are no longer adequate for the arduous tasks ahead.

With the rise of China and a shift of the world’s economic center of gravity to East Asia, Hong Kong urgently needs to strengthen its economic and trade ties with the Chinese mainland and Asia to ensure the city’s economic growth. The US’ and the West’s continuous hostility toward the Chinese mainland and Hong Kong has forced the city to look for development space and opportunities in the non-Western world.

In the face of increasingly fierce competition from the mainland and other places, Hong Kong’s global economic competitiveness must be rapidly enhanced, and cultivating new economic growth points is an urgent and inescapable government obligation. Therefore, although the HKSAR government cannot be as capable and involved in economic affairs as other governments, it still must increase the depth and breadth of its participation in economic matters as far as its capabilities allow.

Given Hong Kong’s unique background and endowments and the limited capabilities and resources of the HKSAR government, it must involve itself in economic affairs in a meticulously calibrated “creative intervention” manner, especially in broadening the city’s international economic space, integrating Hong Kong into the overall development of the country, creating a better business environment, carefully and selectively fostering new industries that enjoy long-term competitive advantages.

In “creative intervention”, the government will mainly rely on making available abundant land, building the necessary infrastructure, implementing policies favorable to economic development and the business environment, boosting international competitiveness, formulating appropriate laws and regulations, and establishing cooperation with more countries. Specifically, the government should strengthen economic and trade ties with more countries and regional economic blocs, get involved extensively in the country’s five-year plans, provide moderate financial support to selected industries and enterprises, accelerate the importation of foreign capital, enterprises, and talents, publicize Hong Kong’s investment environment and development opportunities to an overseas audience, and cooperate with other cities in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), under the coordination of the central government, to build an ecosystem conducive to the development of new industries, and strengthen the government’s ability to mobilize, organize, deploy and use commercial and societal resources.

To create a government capable of “creative intervention”, the government must have a high sense of mission and crisis, and understand that the future development of Hong Kong is inseparable from the government’s wisdom, courage, determination and diligence. The government must have a broad international and national vision and be able to chart Hong Kong’s future in a complex, changeable, and severe domestic and foreign environment.

The government needs to have strategic, macro, and long-term thinking, and formulate long-term plans for Hong Kong’s future development and individual policy areas and projects so that Hong Kong’s action can be better aligned with the country’s five-year and regional development plans. The government needs to establish a cooperative relationship with the business community to promote overall interests and carry out various projects to benefit all on the premise of zero tolerance of corruption and nepotism. It should not be deterred by fear of being suspected or accused of “government-business collusion”.

When promoting economic and industrial development, the government needs to coordinate the work of its departments from an overall perspective so that key development projects can be planned and promoted effectively, and multiple policies can reinforce each other. When necessary, the government can set up independent agencies that can operate flexibly and quickly to undertake economic and industrial development projects. For example, when developing the innovative technology industry, there is a need to integrate policies to generate maximal synergistic effects. In fact, in all countries with relatively mature innovative technology industries, whether they are practicing capitalism or socialism, the active participation of the government and close cooperation between the government and enterprises are indispensable.

In the past, when the “free market” or “liberal” ideology was in vogue, government policies geared to support individual industries were regarded as “deviant”. “Picking the winners” by the government was taboo. However, today, this ideology has become antiquated. On the contrary, more and more scholars believe that well-thought-out and executed industrial policies are essential to maintaining national security and necessary for economic development.

In his book Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed — and What to Do about It (2009), Josh Lerner points out that virtually every hub of cutting-edge entrepreneurial activity today has originated in proactive government intervention. Similarly, government intervention has profoundly shaped the venture capital industry, essential for fostering innovative technology in many markets.

He classifies entrepreneurship-enabling efforts into four broad “buckets”: getting the laws right, ensuring access to cutting-edge technologies, creating tax incentives or removing barriers, and training potential entrepreneurs. He adds, “In many recent success stories, such as Israel and Singapore, the growth of the venture capital industry was not driven by inexperienced domestic investors, but by global players.”

What is essential is that the HKSAR government and people in all walks of life in Hong Kong understand that accelerating integration into the overall development of the country is crucial to the future development of Hong Kong, particularly given the unrelenting hostility of the US. The current urgent task is to participate in the development of the GBA and the country’s forthcoming 15th Five-Year Plan (2026-30) to align the future development strategy of Hong Kong with that of the mainland.

 Hong Kong must discard for good the “fortress Hong Kong” mentality that has resisted deep integration with the mainland economy. Once again, taking the promotion of the innovative technology industry as an example, Hong Kong has some favorable conditions for developing this industry regarding basic research, intellectual property protection, and financing. However, in terms of land, talent, government support, investment priorities of enterprises and industrial production capacity, Hong Kong is lagging and thus beckoning government actions for improvement. Compared with its competitors, Hong Kong’s start has been much slower. Hence, to build an ecosystem conducive to the development of innovative technology, it is imperative for Hong Kong to jointly build an auspicious ecosystem with other cities in the GBA, particularly Shenzhen, under the top-level design and support of the central government. Going it alone is a nonstarter, and so is seeing other cities as rivals. The construction of such an ecosystem of division of labor and cooperation among GBA cities for innovative technology should be incorporated in the 15th Five-Year Plan.

In short, to practice “creative intervention”, the HKSAR government has a long way to go and must constantly improve itself and take decisive action. The government must train and recruit more talent locally and from abroad to facilitate the performance of its new economic functions. It must also foster a cooperative partnership with the commercial, manufacturing, educational and social sectors to generate more resources, ideas, and talent. And it must forge an even closer relationship with the mainland to pursue joint projects, particularly in the GBA.

The author is a professor emeritus of sociology, the Chinese University of Hong Kong, and a consultant of the Chinese Association of Hong Kong and Macao Studies.

The views do not necessarily reflect those of China Daily.