One of the most striking observations of Hong Kong is how such a fiercely capitalistic real estate market can co-exist with nearly complete government ownership of the underlying land base. As discussed in prior posts, the land “business model” is for government to sell development rights on a long-term lease basis with both up-front and ongoing revenue streams. This model of development has existed in Hong Kong relatively intact, with only some modification to the length of lease terms, since the mid-1800s under British colonialism.
In fact this hybrid socialist/capitalist model of land ownership so effectively generated wealth for both parties to the land lease transaction over the last two centuries, that it has had a significant effect on China’s urban land policies in general since the late 1970’s when Deng XiaoPing instituted a series of land reforms across China. During the twenty-year period leading up to the eventual handover of Hong Kong by the British Government, China created the new city of Shenzhen, just across the border from Hong Kong. With an ownership scheme modeled on the government lease of land and coinciding sale of development rights, combined with a market-based socialism approach to capital formation and economic growth, the city of Shenzhen exploded from a town of 20,000 to a megapolitan area of over 14 million people today.
We learned from the leadership team at the Hong Kong Science and Technology Parks that the regional aspiration of the local governments in Shenzhen and Hong Kong Special Administrative Region is to create a globally competitive marketplace for science, technology, manufacturing, finance and trade. With a combined regional metropolitan GDP of US$886 Billion (2009), this Shenzhen-Hong Kong economic region is third in the world, only behind Tokyo and New York.
Impressive results by any measure in just over 30 years.