Growing economic divide fuelling unrest in Hong Kong and Chile

A demonstrator clashes with riot police during a protest against the government in Santiago in Chile. Picture: AFP

Australia is now experiencing the first stage of the Hong Kong exodus: the expatriation of capital. Credit Suisse links part of the sharp rise in Sydney and Melbourne dwelling prices to Hong Kong money.

But there is a twist to the buying, because much of the money is being channelled through local Chinese residents who have stepped up their purchasing rate.

President Xi Jinping has been relucent to act decisively and ruthlessly to end the Hong Kong riots for three main reasons: he wants Taiwan to voluntarily join China and a bloody attack Hong Kong would set such an arrangement back decades; secondly it would almost certainly end the US trade talks; and finally, it would accelerate the next stage of the exodus — people.

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Chinese troops were used at the weekend but their role was cleaning up and they were armed with brooms rather than guns.

Meanwhile, the close connection between Hong Kong residents and Australia is underlined by the fact that much of the money is being channelled through local Chinese residents. Those connections will be important if China intervenes and there is a population exodus.

But the impact of a Hong Kong breakdown will be even greater on Singapore. Currently Hong Kong executives of large international companies are being told to run the enterprises from home. That’s not sustainable and many will shift to Singapore.

China is aware that the hidden story behind the Hong Kong riots is the income equality divide, which also affects many countries including China itself, the US, France, Chile and to some extent Australia.

Ironically the Hong Kong money exodus contributes to Australia’s growing divide by boosting dwelling prices, particularly selected parts of Sydney and Melbourne.

People’s Liberation Army soldiers, with brooms, arrive to clean up the protest area at Hong Kong Baptist University in Hong Kong. Picture: AP

Growing division

In Hong Kong the growing division between those who own a dwelling and those that don’t is a key underlying part of the Hong Kong problem. In Hong Kong house prices are extraordinarily high (those owning dwellings in Hong Kong can’t believe how cheap Australian prices are) and to afford a dwelling you must earn large sums or have inherited wealth.

To earn large sums, you need a top education but there is a huge difference between education standards provided in Hong Kong private schools and that provided by the state system. And so, children whose parents can’t afford private education are relegating their children to a second-class education and, unless they are very bright, a lower paid job and living standard.

And unfortunately, the rewards of the prosperity in Hong Kong are not filtering down to those with the lower paid jobs and it is this group of people that played a big role in the early mass demonstrations.

In recent times the Hong Kong administration has tried to ease the situation by releasing land and other measures, but it has proved to be too little, too late. And it seems that the children of the rich families are now joining the riots as the turmoil spread to universities. The alarmed parents of those children who are involved in the riots will now be advancing their exodus plans, and many will seek to come to Singapore, Canada or Australia.

Meanwhile, in China the Hong Kong riots have assisted in boosting Chinese nationalism, which takes the urgency out of the income divide issue for Beijing. But longer-term, China is also vulnerable.

In the US the small and medium business stimulation has worked, and income levels are starting to rise but it took a long time. And that long delay gave impetus to the current front runner in the democratic nomination, Elizabeth Warren who is all about distributing wealth from Wall Street to ordinary people. The current increase in average US income will be Trump’s main re-election stance.

Riots in Chile

Meanwhile all the Australian attention is on Hong Kong but income inequality riots Chile is just as dramatic.

Chile’s currency dropped to a record low last week as hundreds of thousands took to the streets with anti-government demonstrations showing no signs of abating. The riots are again about income distribution and there is none of the democracy veneer we see in Hong Kong. Chile was one of the most stable of the South American countries and has attracted a great deal of western investment, led by BHP and Rio Tinto and their massive copper mines.

Fascinatingly in Australia “a fair go” was an important plank of the Shorten campaign and he might have won on it but for his crazy retirement and pensioners’ tax and his equivocation on the Adani coal mine. So far Australia has not followed the US in stimulating small and medium business and so not surprisingly wage growth is sagging, and we are seeing some protests albeit mild when compared to Chile, France and Hong Kong.