Whether the Construction Industry Is the ‘Pillar’ Industry in Hong Kong?

BRE216ECONOMICS FOR CONSTRUCTION AND REAL ESTATE Kwan Tsz Him (11168188D) Kwan Cheuk Pui (11055717D) Cheng Ming Xian (11704592D) Introduction Although Hong Kong has less land, there are always construction projects happening everywhere in Hong Kong, for example, West Kowloon Cultural District development, Kwun Tong redevelopment project, etc. However, workers and capital involved in the construction industry have been decreasing.In this report, we will discuss whether the construction industry is the ‘pillar’ industry in Hong Kong and we disagree with it. Focused industries As proposed by the Government decades ago, there are four ‘pillar’ industries in Hong Kong, namely, financial services, trading and logistics, tourism and producer and professional services. They account for about 60% of GDP and nearly half of the total workforce, in which construction industry is counted in the producer and professional services.In the 21st century, the Government wants to look forward and follow the trend of technological and advanced world, they proposed another six new ‘pillar’ industries, concerning testing and certification, medical services, innovation technology, culture and creative industries, environmental industry and education services, in which construction industry is not counted in any ‘pillar’ industry and no longer treated as important by the Government. Features of local construction industry There are several features for local construction industry in Hong Kong, with dangerous working environment being the major one.Without doubt, accidents happen all the time in Hong Kong when you simply flip through the newspaper. Some of the accidents are inevitable while some happened due to carelessness. For example, the workers may not be aware of the safety regulations, accidents always happen while the workers do not obey the safety regulations as well as not to follow the working regulations. Besides, competiti on between overseas contractors is keen. Nowadays, a lot of construction projects in Hong Kong are outsourced to overseas contractors. It is because the technology is more advanced in overseas countries such as in Germany, the United States, France, etc.With reasonable price and advanced technology, the other countries sometimes are more competitive. Moreover, labor intensive is also the label of construction industry in Hong Kong. Limited land with high population is a characteristic for Hong Kong. Labor can be easily found, however, is only applicable in the past. This will be examined in the report later. Concerning the environment, pollution is in line with the construction industry to a large extent. Since construction work will inevitably pose noise, air and sometimes water pollution.The pollution extent depends on the scale of the project. Basically, the larger scale of a construction project, the greater the pollution will be resulted. Reasons of excluding construction indus try as pillar an industry in Hong Kong As mentioned before, the feature of labor intensive can only be described in old years due to the transformation of economy. In late 80s, the HKSAR has been transforming the whole economy from labor intensive industry to commercial industry which is defined as tertiary services as finance and accounting, investing, banking and so on.In such knowledge-based society, the unemployment rate for those with low education level could be especially higher. Also, there is no new blood to enter such industry. This can actually be explained by the above phenomenon. Nowadays, most of the workers are 50 years old or above and the industry faces the aging problem. As this cannot be fixed, construction industry will decline gradually. Nowadays, the opportunity of receiving proper education is higher, thus the citizens do not willing to enter to an industry with gloomy future. Diagram showing the percentage of population distribution in different working secto rsAs for the construction industry, we may see that the percentages are actually fluctuating throughout the years and increased from 5. 4% to 6. 8% in 1971 and 2006 respectively. Only a light increase in population is resulted and also, it just accounts for a little percentage. Frankly speaking, a lot of buildings are, nowadays, built for different uses for economic development and social settlement. However, the problem of aging of such industry is becoming more serious and we can barely see how the government has implemented any scheme to cope with such problem.Total building and construction output and annual percentage change (Census and Statistics Department) | Total construction as % of GNP| Current value| 2006| 25. 1| 14. 2| 2007| 23. 7| -0. 1| 2008| 21. 1| -15. 6| 2009| 13. 8| -44. 6| 2010| 9. 2| -35. 0| Direct and indirect employment construction (Census and Statistics Department) As the diagram above suggests that the direct and indirect employment in construction is shrin king from 2004 to 2010. Also, the total output as well as the total construction as percentage of GNP is decreasing from 25. 1% to 9. 2% in 2004 and 2010 respectively.This data has indicated that the economic return and contribution to Hong Kong is contracting to a large extent. Construction distribution to GDP Gross Domestic Product (GDP) by Economic Activity – Percentage Contribution to GDP at Basic Prices (Census and Statistics Department) | 2006| 2007| 2008| 2009| 2010| Construction| 2. 7| 2. 6| 3. 0| 3. 2| 3. 3| Services| 91. 7| 92. 8| 92. 5| 92. 6| 92. 9| GDP refers to the market value of all final goods and services produced within a country in a given period. From the table above, we can find that from 2006 to 2010, the construction industry only contributed about 3% to GDP.To compare with other industries, construction industry seems has not reach the standard of becoming a pillar in Hong Kong. The problem of construction industry in Hong Kong Building contractors in Hong Kong are usually small. The competition between domestic and foreign building contractors is keen, because our building technology is labor-intensive and traditional. They compete on price, and cut costs, and sometimes, very unfortunately, corner as well. Consequently, the problems of safety and lack of technology development happened. Besides, the building cost in Hong Kong is among the highest in advanced economies.As a result of low profitability, most industry participants adopt a short-term view on business development. Complex infrastructure projects have been undertaken by international contractors most of the time. According to Labour Department accident statistics for 2005, the accident rates per 1,000 workers in the construction industry is 59. 9, these figures were higher than the overall accident rate of 30. 6 per 1,000 workers in all industries. Due to the risk is higher than other industries, lack of graduates over the next two/three years will associate with con struction.The potential danger has reduced the possibility to attract leaving certificate students into the construction professions, it increases the difficulty to continue and expand the construction industry. Number distribution of workers in construction industry (Labour Department) | End of 2000| Beginning of 2009| Total workers| 83924| 51944| Public| 44355| 20825| Private| 32704| 31119| Building| 61676| 40772| Civil| 22248| 11172| Conclusion To conclude, we do agree that construction is very important in Hong Kong. Real estate is closely linked with the economy and it creates many job opportunities.During the â€Å"financial tsunami†, government even earmarked large amounts of public money on construction projects to stimulate the economy. However, the distribution from construction industry to GDP becomes less and less while compare with the past, it only holds about 3% of GDP every year. Besides, with many problems in this industries, it is not easy for the Government to make it as a ‘pillar’ industry. We suggest that the Government still need to put focus on construction industry but it need not to be the pillar industry in Hong Kong. Reference 1.Census and Statistics Department: Report on the Quarterly Survey of Construction Output, 3rd Quarter 2011 http://www. censtatd. gov. hk/freedownload. jsp? file=publication/stat_report/commerce/B10900022011QQ03B0100. pdf&title=Report+on+the+Quarterly+Survey+of+Construction+Output&issue=Third+Quarter+2011&lang=1 2. Census and Statistics Department: Real Estate Project Statistics http://www. censtatd. gov. hk/hong_kong_statistics/statistical_tables/index. jsp? tableID=119 3. Census and Statistics Department: Statistics in the industry section of construction http://www. enstatd. gov. hk/hong_kong_statistics/statistical_tables/index. jsp? tableID=116 4. HK Job News http://www. hkjobnews. com/2010/03/7. html 5. Construction Workers Registration Authority. Annual report http://www. cwra. org. hk /information/AnnualReport/report11/index. htm 6. 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