As protests continue to roil Hong Kong, a widely followed economist has an idea about how to ease tensions: China, he said, needs to take power away from the city’s tycoons and fix its property market.
The east Asian financial hub has been rocked by civil unrest in recent months with operations of Hong Kong International Airport severely disrupted this week due to a sit-in by protesters. The ongoing demonstrations in the city started as peaceful rallies against a single proposed law but have snowballed into a wider pro-democracy movement, with some even demanding full autonomy from Beijing and occasional outbreaks of violence.
Social discontent with stratospheric housing prices is playing a major part in the unrest, Andy Xie, an independent economist, told CNBC’s “Squawk Box” on Wednesday.
“Hong Kong has been a pressure cooker for a long time,” he said.
According to the Centa-City Leading Index, a widely used indicator of the city’s residential price trends, property prices have appreciated over 300% since 2003 when they tanked due to a disease epidemic.
But wages have largely stagnated in the same period, so “it’s very difficult to see how young people can feel hope. They know they’ll never be able to afford a place, so they cannot start a family. How can they get ahead in life? Desperation, and really a deep sense of unhappiness, is driving this unrest,” said Xie.
Xie’s comments come just as business leaders are coming out to voice their stand as protests start to take a toll on the Hong Kong economy.
On Sunday, property tycoons in Hong Kong issued a joint petition to newspapers calling on the public to cease illegal protests and allow the return of stability, the South China Morning Post reported.
CITIC Capital CEO Zhang Yichen, meanwhile, posted a notice appealing for the restoration of law and order in Hong Kong on his WeChat social media account on Wednesday. The notice urges support for the Hong Kong government and police. CITIC Capital is the alternative investment arm of Chinese financial conglomerate CITIC Group.
Last year, global chairty network Oxfam flagged a “particularly severe” wealth disparity in Hong Kong, which it said was the highest among all developed countries and regions.
Hong Kong is the world’s most expensive city to buy a home, according to another report released in April.
Xie attributed the sky-high property price to the housing market being lead by local business leaders.
“The Hong Kong government is not really in charge (even though) most people think that they need to listen to Beijing, but perhaps more importantly, they are really influenced by the big property tycoons,” said Xie.
Although the Hong Kong authorities have changed housing policies several times, “in the end, they favor tycoons, giving the land to the tycoons,” the economist asserted.
But private developers “hold the land, not building much and they just try to squeeze the market and push the prices as much as possible,” he said.
Xie said real estate developers benchmark their prices against the salaries and big bonuses of those who work in the financial sector, but that has priced out the vast majority of the local population.
“For ordinary people, you make an income about 5% of a financial guy and they think you should get 5% of an apartment, so they create something like a ‘nano flat,'” he said, referring to tiny apartments in Hong Kong that can be the size of a parking space. “That is really crazy.”
“They think that people will just take it lying down forever, (but) eventually, it blows up,” said Xie, who was a former chief Asia-Pacific economist at Morgan Stanley.
“The key is that the political structure here is neither the Singapore situation where the government is on top, nor like Taiwan (where) it’s a democracy and people can vote,” said Xie, who recently penned an opinion piece in the South China Morning Post on the subject.
Hong Kong is “in between — just a bunch of business people calling the shots,” he added.
Beijing needs to distance itself from the tycoons in Hong Kong, said Xie.
“Every time, there’s a disturbance in Hong Kong, Beijing goes to these business guys for advice; you know something’s very wrong,” said Xie. “These guys are causing the trouble in Hong Kong, why are you going to them for advice every time?”
“They are the problem; they need to become regular business people, not having political power (and) running the place,” said Xie.
In response to CNBC’s request for comments on Xie’s comments, the Real Estate Developers Association of Hong Kong said through its public relations agency that it “doesn’t have any comments to share at this point.”
—CNBC’s Penny Chen contributed to this report.