How China Killed Hong Kong's Economy

0:00 This is a $167,000 parking space.

0:05 What’s special about it?

0:07 Honestly, not much.

0:09 It’s a single, eight by sixteen foot slab of concrete

0:13 in a frankly not very happening part of town.

0:17 But hey, that’s why it’s so affordable!

0:20 Other, better slabs of concrete have sold for as much as 1.3 million.

0:27 Welcome to the crazy world of Hong Kong real estate,

0:30 where even modest 400-square-foot studios go for seven figures.

0:36 And that’s not even the craziest part…

0:39 The funniest thing about that $167,000 parking

0:42 space is that it’s mere steps away

0:46 from this— miles and miles of untouched jungle.

0:50 This is that garage and this, all around it, is a whole lot of… nothing.

0:57 Clearly, there’s no shortage of land.

1:01 In fact, 75% of the city’s entire surface

1:04 is completely empty— occupied only by wild boars, snakes, and monkeys.

1:11 Developers would kill to sprinkle these mountains with 60-story

1:15 high-rises as far as the eye can see.

1:19 But… they can’t.

1:21 The government owns every inch of land.

1:23 And it only makes a measly 25% of it available to anyone but the monkeys.

1:31 Needless to say, it does this out of love for money, not monkeys.

1:36 The goal is to inflate prices by artificially reducing the supply of land.

1:42 Each year, the government puts a tiny— I can’t stress

1:46 this enough— tiny sliver of the other 75% up for auction,

1:51 which it sells to the highest bidder.

1:54 Last year, for example,

1:56 just 0.013 square miles were put on the market— or 0.003% of the total.

2:03 That’s in a city of over 7 million people!

2:08 This was the only new land available in all

2:11 of crowded Hong Kong for the entire year.

2:14 Unsurprisingly, then, even this minuscule amount sold for nearly a billion U.S.

2:21 Dollars— 100% of which went right back in the government’s pocket.

2:26 With the stroke of a pen,

2:29 it effectively created a billion dollars out of thin air.

2:33 It turns out having a monopoly on land in the most

2:36 land-constrained city on earth is a pretty lucrative gig.

2:40 …So lucrative, in fact,

2:41 that it can get away with some of the lowest tax rates on the planet.

2:46 Its highest income tax rate— reserved only

2:49 for the absolute richest of the rich— is just 16%,

2:54 compared to 45% in Japan, 37 in America, or 24 in Singapore.

3:01 And the average Hong Konger pays far, far less— about 2%.

3:08 There’s no sales tax, no capital gains, or even inheritance.

3:13 Now, there are dozens of tax havens around the globe,

3:17 from the Cayman Islands to Bermuda.

3:20 But they’re designed for the comfort of money, not people.

3:24 None offers anywhere near the public services of Hong Kong.

3:29 Only there do you get Japanese or European-level public transit,

3:34 universities, and healthcare, for Cayman Islands prices.

3:39 That’s a compelling offer, especially when your employer covers housing.

3:43 Which is why thousands of successful, mid-career bankers,

3:48 lawyers, and accountants in London, New York,

3:50 and Houston wake up one day, pack their bags,

3:54 and move their entire families thousands of miles away, to live here.

3:58 Many like it so much, in fact, that they never go back— unwilling to accept

4:05 a lower quality of life for a higher cost.

4:08 So that’s the Hong Kong economic model: severely restrict the supply of land,

4:14 then sell it for extortionate prices,

4:16 then use that revenue to support a world-class city despite dirt-cheap taxes.

4:22 But there’s still one missing ingredient.

4:25 For this to work, someone has

4:27 to keep buying all these million-dollar parking spots.

4:31 It can’t be locals, who are quite

4:34 unfairly priced out of their own housing market.

4:37 And it can’t be expats; there simply aren’t enough of them.

4:42 Luckily, it has an almost bottomless source of demand right next door called

4:48 “China.” When Beijing finally loosened its grip on the economy in the 1980s,

4:53 it instantly created an enormous amount of wealth right on Hong Kong’s doorstep.

4:59 Some 800 new Chinese billionaires— and countless more

5:04 millionaires— were minted between 2000 and 2018 alone.

5:09 But this wealth was extremely anxious.

5:12 And for good reason.

5:14 As these entrepreneurs would soon learn,

5:17 the Chinese government would now let you get rich,

5:20 but there was no guarantee it would let you stay rich.

5:25 Much has changed in China over the past 40-odd years—

5:29 to say the least— but this much, decidedly, has not.

5:34 Your company can employ hundreds of thousands of people.

5:38 It doesn’t matter— in 2021, the $100 billion private tutoring industry was wiped

5:43 off the earth with the stroke of a pen.

5:47 You can accumulate astronomical wealth.

5:49 It doesn’t matter— Jack Ma, formerly China’s richest man,

5:54 was disappeared for saying vaguely

5:56 disparaging things about the government… once.

6:00 You can even keep your head down and be a good, loyal, low-level bureaucrat.

6:04 But… it doesn’t matter— public employees have been

6:09 ordered to return their end-of-year bonuses during economic downturns.

6:15 As long as your money stays within its borders,

6:18 it can always— always— be taken back.

6:22 So, what do you— a Chinese supermarket or property mogul— do?

6:28 You run.

6:29 And where do you go?

6:31 Somewhere safe.

6:32 Somewhere with the rule of law.

6:34 Somewhere with free and independent judges

6:37 that respect private property and due process.

6:41 Well, Hong Kong had all of that …and it had incredibly low

6:46 taxes …and it had an incredibly strong real estate market …and it

6:51 was just a stone’s throw away …and there was a good chance

6:55 the person selling you that million-dollar

6:57 parking space even spoke the same language.

7:01 It was a match made in heaven.

7:04 Chinese elites got a safe place to stash their cash outside

7:07 the mainland and Hong Kong got insanely rich off land sales.

7:13 Now, the key to all this— the only reason it worked— was that Hong Kong

7:19 was caught in a strange political limbo…

7:22 There are countless free democracies around the world.

7:26 And there are countless more un-free autocracies.

7:30 The two— freedom and democracy— so often go

7:33 hand-in-hand that it feels strange to even say this.

7:37 But Hong Kong, uniquely, was stuck somewhere in between:

7:42 it had freedom without democracy.

7:44 Its government has never been directly accountable to the public.

7:49 During British rule, London appointed a Governor.

7:52 Then, after the 1997 handover,

7:55 Beijing effectively began appointing a Chief Executive.

7:59 This was a necessary ingredient to its

8:02 economic model because if it were a democracy, voters would, quite sensibly,

8:07 pressure their representatives to solve the housing crisis.

8:10 And if they did— if land became plentiful— the whole

8:15 system would collapse— the government would lose this source of revenue.

8:21 Yet, despite its lack of democracy, Hong Kong was relatively free.

8:27 Money, ideas, and people moved in and out of the territory nearly unimpeded.

8:33 When dissidents were driven out of the mainland,

8:35 they often fled to Hong Kong, where they could speak their minds.

8:39 There was no Great Firewall.

8:42 Professors had academic freedom.

8:44 There were no capital controls.

8:47 And corporations trusted its courts to be fair

8:50 and independent to the tune of billions of dollars.

8:54 This was necessary because if it wasn’t free,

8:56 investors would simply move their money elsewhere.

9:00 The whole point of getting your money out

9:03 of the mainland was to escape the Party’s control.

9:06 And this truly one-of-a-kind combination— freedom

9:09 without democracy— produced a truly one-of-a-kind city.

9:14 99% of cities around the world follow the same basic pattern because 99% are

9:20 influenced by the same economic forces… Since

9:24 building up is more expensive than building out,

9:27 the convenience of the former only outweighs

9:30 the cost for some people and industries.

9:33 They inevitably cluster together in one or two pockets

9:37 of density— this is the “downtown core.” The rest sprawl outward.

9:42 Nature succumbs to the “efficient use of land”

9:46 until the city is drained of all its color.

9:50 But not in Hong Kong.

9:52 Its shortage of usable land leaves no room

9:55 for anything less than one hundred percent efficiency.

9:58 One-quarter of the city is built up to its absolute

10:02 limit— every inch of land accounted for and utility maximized.

10:07 Meanwhile, the other three-quarters that surround

10:10 it remain frozen in time— green, pristine, untouched nature.

10:16 The effect this creates is breathtaking.

10:19 You get the extreme density of Midtown Manhattan directly

10:23 adjacent to the extreme serenity of the Hawaiian jungle.

10:27 And you can peer down at the former from the latter.

10:32 Hong Kong has more skyscrapers than New York, Chicago, Miami,

10:36 and Houston combined— far more than any other city on earth.

10:41 And it has the beach.

10:43 And it has mountains.

10:45 And it has clean, affordable, timely public transit to move between them.

10:51 Earlier, I joked that developers would love

10:55 to “sprinkle” the jungle with 60-story high-rises.

10:58 But that’s not a joke— it’s really what Hong Kong looks like!

11:03 This is not a 3D render.

11:05 It’s actual footage of an apartment complex.

11:08 And it’s a 20-minute hike away from this incredible vista.

11:13 In what other city do you get this view from a public bus?

11:17 In what other city is the term “urban

11:20 jungle” made so literal— nature and city colliding

11:23 in such close proximity that wild boars invade

11:27 train stations where white-collar professionals are commuting to work?

11:31 What other city lets you escape the cubicle

11:34 on your lunch break with a view like this?

11:37 Of course, this is not without its drawbacks.

11:41 At 300 square feet, this is roughly the average size apartment for two,

11:46 “middle class” Hong Kongers.

11:48 This is the laundry room, this is the kitchen,

11:52 and this, in case you missed it, is the bedroom.

11:56 Nothing about this is fair or compassionate.

12:00 And in no real democracy would voters tolerate being squeezed into coffin-sized

12:05 apartments while wild monkeys roamed freely

12:08 across the remaining 75% of all land.

12:12 …All of this is to say: there’s no other place quite like it

12:17 because there’s no political system quite like it.

12:20 And there’s a reason: it’s fragile.

12:23 The people, for example, can exercise their freedoms to demand democracy.

12:29 And that’s exactly what they did.

12:32 For a brief moment in 2019, there was hope that this paradox could

12:37 be resolved by Hong Kong gaining democracy.

12:40 That summer, two of its seven million residents marched in the streets,

12:45 protesting a proposed bill that would allow extradition to mainland China.

12:50 Soon, this evolved into a broader pro-democracy movement.

12:55 Miraculously, it managed to sustain this momentum for nearly a year,

13:00 holding major protests almost every weekend.

13:04 But then, while the world was distracted by the pandemic,

13:07 Beijing reacted— resolving the paradox, but not in the protestors’ favor.

13:14 Instead, it exploited the absence of democracy to dismantle Hong Kong’s freedom.

13:20 It foisted upon the city, without a single vote,

13:24 a “National Security Law,” which outlaws

13:27 the vaguely defined crimes of “secession,

13:31 subversion, terrorism, and collusion.” Now, on paper, that’s it.

13:35 Hong Kong still has its own, separate passport, currency, and legal system.

13:41 Even the courts are still widely considered fair and independent.

13:46 In fact, six British and Australian judges sit on its Court of Final Appeal.

13:52 The National Security Law doesn’t change any of this.

13:56 What it does do, however, is create a second, parallel court system.

14:01 And this one is most certainly not fair or independent.

14:06 Its judges are hand-selected by the government.

14:09 Its trials can be held in secret.

14:12 And its police don’t need search warrants.

14:16 So, what qualifies as endangering “national security?” So far,

14:21 reading a newspaper in public, publishing children’s books,

14:25 and wearing the wrong color shirt.

14:29 In short: whatever the government decides.

14:32 …Which means any person, any company, any property,

14:36 or bank account in the territory could be placed under Beijing’s control.

14:41 With neither freedom nor democracy,

14:43 Hong Kong begins to look more and more like mainland China.

14:47 And the more it looks like China, the less advantage it has over China.

14:54 Why should you, a Chinese supermarket or property mogul,

14:58 take your money to Hong Kong if it isn’t any safer?

15:02 You could just as easily escape the Party’s reach in Singapore,

15:08 London, or Vancouver instead.

15:10 Now, that alone would be bad enough.

15:13 But it gets worse: Hong Kong is also

15:16 caught in the middle of the U.S.-China trade war.

15:20 Its currency is pegged to the U.S.

15:22 Dollar— meaning it’s affected by high U.S.

15:25 interest rates.

15:26 And it finds itself more dependent than ever on the Chinese

15:30 economy at the exact moment its growth is slowing.

15:34 Meanwhile, the city’s best and brightest— its future workforce— is fleeing.

15:40 Thousands of highly educated, high-earning,

15:43 often English-speaking families have escaped China’s grip by moving to the U.K.,

15:49 Canada, or Australia.

15:51 For all these reasons, demand for property has plummeted.

15:55 One $77 million mansion, for example, recently sold at a 60% discount.

16:03 And less demand, of course, means less revenue.

16:07 Last year’s land sales were the lowest since the Great Recession— a tiny

16:12 fraction of the $20 billion it collected just a few years ago.

16:17 In fact, two of the five auctions had to be

16:20 canceled after no one offered more than the minimum bid.

16:24 Land used to pay for a third of the city’s budget.

16:28 Today, it barely makes a dent.

16:30 The city has been running a deficit for all but one of the past five years.

16:36 Which means sooner or later it will either have

16:39 to drastically reduce its spending or drastically raise its tax rate.

16:45 Either it will lose its world-class public transit, healthcare,

16:48 and universities, or it will lose its tax advantage.

16:53 One way or another, Hong Kong will slowly

16:56 lose the very things that make it special.

17:00 After Beijing imposed the National Security Law,

17:03 its allies were quick to highlight similar laws around the world.

17:07 “Hong Kong,” they said,

17:09 was just “becoming more like the rest of the world.” In a way, they were right.

17:15 That, after all, is what those of us who love Hong Kong fear the most.

17:22 In 2021, the Hong Kong government replaced public school curriculum that taught

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