Published: 01:34, July 4, 2023 | Updated: 10:18, July 4, 2023
Competitiveness rankings shouldn’t be taken at face value
By Ho Lok-sang

The International Institute for Management Development (IMD) of Switzerland recently released its annual world competitiveness ranking report, the IMD World Competitiveness Yearbook 2023. Hong Kong fell two places, to seventh, from the previous year. As an economist, I am interested in competitiveness, but I am not really that much interested in competitiveness rankings, for the reason that they are often misleading and may even distract people from the real issues.

I do not intend to fault the IMD because it has done a rather good job, having included both hard objective data as well as perception survey data from an international panel of experts and executives. The competitiveness index comprises four key dimensions: economic performance, government efficiency, business efficiency, and infrastructure. There are five subfactors under each of these dimensions, and each of them carries equal weight. Its well-known that ranking exercises like this need to grapple with the issue of practicality. The equal weight assumption cannot really be justified, but alternatives are difficult to implement, and defending any specific alternative will certainly invite criticisms.

In any case, competitiveness is inherently tied to institutions, people and infrastructure. Economic performance, government efficiency and business efficiency all stem from more-fundamental factors. Hong Kongs economic performance was ranked 36th, down from 15th in the previous year. The decline is not at all surprising because the economy was very weak last year as a result of the COVID-19 pandemic and the quarantine measures that were taken to protect health and life. Actually I find it rather surprising that Hong Kong ranked second in government efficiency, well ahead of Singapores seventh. The US and the Chinese mainland ranked 25th and 35th respectively in government efficiency.

While reports like those of the IMD do offer us some insight into how each economy is doing in competing for talent and capital, they must not be taken at face value

Hong Kongs infrastructure ranking is 13th, compared to Singapores ninth and the mainlands 21st. The US ranked sixth in infrastructure. Some people may wonder how the US infrastructure ranking can be this high. For the IMD, however, infrastructure is not only basic infrastructure, but includes also technological infrastructure, scientific infrastructure, health and environment, and education. The US is no doubt ahead of the Chinese mainland in scientific infrastructure as well as health and environment infrastructure. Indeed, the US took the first spot in scientific infrastructure, well ahead of the mainland at 10th. The US is ranked 12th in technological infrastructure, behind the mainlands ninth. In basic infrastructure, the US took the 20th spot, only slightly behind the mainlands 18th. In education, the US stands at 13th, well ahead of the mainland at 32nd. Hong Kongs rankings in basic infrastructure, technological infrastructure, scientific infrastructure, health and environment, and education are 11th, fifth, 24th, 16th, and ninth respectively.

Hong Kongs terrific ranking in government efficiency owes to its being ranked third in tax policy and first in business legislation. Hong Kong is ranked eighth in public finance. Tax policy and business legislation form part of Hong Kongs existing institutions, and do not reflect the day-to-day running of the government. Although Hong Kongs civil service is quite efficient in general, some pitfalls have come to light from time to time. The apparent lapse of maintenance of facilities and supervision that had led to some serious injuries and even fatalities is a case in point. I am hopeful that under the leadership of Chief Executive John Lee Ka-chiu, the government will keep on improving its performance.

I find it surprising that the Chinese mainlands latest overall competitiveness ranking is only 21st and that this represents a decline from 17th in 2022 and 14th in 2019. Again it may have to do with the pandemic. In particular, the mainland ranked second in economic performance in 2019 but only eighth in 2023. But its rankings in business efficiency and infrastructure, both at 21st in 2023, are down from 15th and 16th place respectively in 2019. The noticeable decline in the competitiveness of the mainland does not square with its demonstrated competitiveness in attracting foreign direct investment (FDI). According to Statista, in recent years, the Chinese mainland has been the second-largest recipient of FDI worldwide, attracting approximately $181 billion in 2021. For the whole year of 2022, FDI flows to the mainland reached around $189.1 billion, up about 12 percent compared to the previous year. Even during the pandemic, FDI inflows to the mainland grew by 5.7 percent in 2020 despite the difficult environment, and then grew another 21 percent in 2021. This was mainly due to a comparatively stable economic development and new legislation favoring foreign investment on the mainland, Statista said.

While reports like those of the IMD do offer us some insight into how each economy is doing in competing for talent and capital, they must not be taken at face value. In particular, we need to remember the cautionary tale of the US which having been rated first in the Global Health Security Index then found itself one of the worlds poorest performers in the face of COVID. In any case, there is no fast track to competitiveness. Whether we are talking about Hong Kong or the Chinese mainland, we need to offer security and lots of positive aspects so we can attract talents, as well as multiple opportunities for entrepreneurs and investors. Policymakers will serve the cause of competitiveness well if they maintain their zeal in problem-solving and sustainable development.

The author is director of the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University. 

The views do not necessarily reflect those of China Daily.