There is a perception that new business formation has been slowing for some time in Hong Kong. Are people becoming less entrepreneurial, and the economy less risk-taking, creative, and innovative? If so, why has this happened? And will it end?
The share of individuals in the workforce aged 30-39 who are employers is a good measure of the amount of new business being formed. Setting up a new business successfully requires both creativity (usually found among the young) and business acumen (usually acquired through high-level work experience). Individuals aged 30-39 are in their prime for combining both requirements.
The share of employers in this age group rose from 4.0 per cent in 1976 to a peak of 7.1 per cent in 1996, and subsequently declined to 3.6 per cent in 2011, according to 5-year figures from the various census years. Annual figures from the quarterly General Household Survey show the share peaked at 7.9 per cent in 1993, and by 2014 had declined to 2.5 per cent.
So what explains the decline of entrepreneurial activity in Hong Kong over recent decades?
One contributing factor is the 1997 Asian financial crisis. The subsequent economic recession lasted for 6 years, during which Hong Kong experienced a very severe economic shock comparable to the Great Depression of 1929-39 in the US.
But economic recession alone cannot be the primary explanation. The employer share among 30- to 39-year-olds with tertiary education peaked well before the Asian Financial Crisis and has never recovered.
In fact, the single most important factor is the changing demographic structure of the working age population.
