Capital flight has been
exaggerated.
The brain drain is
serious...
but no more fatal than
Singapore's
Is this capital flight from a dying Hong Kong or aggressive acquisition by a dynamic Hong Kong? Predominantly it is the latter, although there is certainly significant diversification based on fear.
Similarly, there are more individuals keeping money offshore, and the average individual may be keeping somewhat more of his money offshore. These trends are definitely real, but easily exaggerated. Hong Kong money has always been footloose. Individuals have always kept a high proportion of their assets overseas, and firms have always done likewise. The proportions have increased, but if capital flight were so vast, there would be pressures on real interest rates and the Hong Kong dollar that simply aren't
there.
The most vital issue is not capital but people. People, especially the most valuable people, are demonstrably leaving Hong Kong in large numbers: about 45,000 per year the past three years, or roughly double the rate of 1984. The rate is expected to rise to 55,000-60,000 in 1991, reflecting Tiananmen Square. This high rate of emigration disrupts offices, creates skill shortages, and worsens Hong Kong's currently severe inflation. To pessimists, the brain drain means doom.
For perspective on this admittedly serious problem, one can compare Hong Kong with Singapore. The press is as unanimous about Singapore's economic success and excellent economic prospects as it is about Hong Kong's morbidity. In his 1989 National Day address, Prime Minister Lee Kwan Yew bemoaned the 1988 loss of 4707 families "from our top 25 percent," up from only 1,000 earlier in the decade.10 Singapore has less than half (0.47) the population of Hong Kong. Its brain drain has risen much faster than Hong Kong's. It involves the same kinds of people emigrating to the same countries (largely Canada, Australia, and the U.S.) for similar reasons (disdain for current rather than prospective political constraints on with their lives). And it is proportionately much more serious, because Singapore previously had a policy of severely restricting higher (especially post-graduate) education and consequently has a proportionately much more limited pool of high-level skills. Considering all these things, its loss of talent has been proportionately of a similar order of magnitude.
The brain drain can hardly imply doom for Hong Kong and be consistent with rosy optimism for Singapore. It is in fact a serious but manageable problem for both countries. Hong Kong is just beginning to experience a return flow of people (10-15% of the outflow, but highly concentrated among the most talented and ambitious emigrants) who have already received their Canadian and Australian passports, and it is the recipient of a vast inflow of highly talented people from Japan, North America, Western