Hong Kong to impose minimum wage

Sources
Hong Kong to impose statutory minimum wage, Financial Times
Hong Kong plans minimum wage legislation, China CSR

The world’s least-regulated economy will for the first time impose a legally enforceable minimum wage. Hong Kong plans to establish an advisory Minimum Wage Commission to handle the legislative work of drawing up the new law. The Commission is expected to study and decide on the minimum wage’s level and its review mechanism in order to find the proper balance between helping low-income workers get higher wages and preventing the loss of low-wage jobs.

The territory, a former British colony now under Chinese control, has long been a proponent of laissez faire capitalism with its low taxes, light regulation and support for small government. Political pressure has been building, however, for Hong Kong to take some kind of action to close its growing wealth gap. Currently, the average income is just $1,410 a month.

In spite of its long-standing opposition to government intervention, Hong Kong has been reexamining its economic stance in light of the current financial crisis. The growth in the territory’s domestic product slowed to 4.2 percent in the second quarter and is expected to continue its decline. If U.S. and European demand for Chinese exports falls, Hong Kong’s economy will likely take a big hit because of its large investments in manufacturing facilities in southern China. According to Hong Kong’s Chief Executive, Hong Kong “should not see the free market and government intervention as two exact opposites. The market is not omnipotent. Intervention is not necessarily an evil. If the market fails, the government should intervene.” Already, the Hong Kong Monetary Authority has reduced interest rates by 150 basis points and has taken steps to improve interbank liquidity. It also promised to guarantee all deposits until the end of 2010.

Questions
(1) Is the imposition of a minimum wage likely to be successful in helping to close Hong Kong’s wealth gap?
(2) Will the imposition of a minimum wage hurt Hong Kong’s economy and the attraction it has for foreign investors?
(3) Is Hong Kong likely to overhaul its economic system and impose more regulation in light of the financial crisis?